Economic analysis of water resources in Japan: using factor decomposition analysis based on input-output tables

This article explores the cause-and-effect relationship between the exports of manufactured goods and water resources (virtual water). Little is known about virtual water flows in relation to Japan's exports of manufactured goods. The research is based on the Japanese input-output tables and factor decomposition analysis (1980-2000). Virtual water exports include both direct water exports (the water utilized to manufacture final goods) and indirect water exports (the water required to produce intermediate goods). In the analysis, the change in virtual water exports is decomposed into three determinant factors: the direct water coefficient change, indirect water coefficient change, and export volume change. The findings imply that the export volume change was the most influential factor in determining the total volume of Japanese virtual water exports in the early 1980s; however, the volume of indirect water change exerts a stronger influence on the massive virtual water exports now and is greatly affected by subsidiaries. Manufacturers depend on the supply of water from developing countries to enhance their competitive strengths. Thus, the article suggests possible changes in virtual water trade flows between Japan and other countries.