The economic value of water in Korean manufacturing industry

It is quite important for manufacturing firms to stably secure water, because industrial water is used for a variety of purposes as one of the important inputs in the production process. Despite the significance of industrial water use and the increase of industrial water demand, relatively little has studied regarding the industrial water use in Korea. This paper employs the marginal productivity approach in order to estimate the economic value of water in Korean manufacturing industry, and we use the information of 53,912 factories surveyed in 2003. The result of the likelihood ratio test shows that Trans-log is an appropriate model for estimating the data of this study. In Trans-log function model, the industry-wide output elasticity of water is 0.0104, and the marginal value is KRW 1,156 per ton. The estimated values differ across the sectors and these values range from the high value of about KRW 13,760 per ton in the transportation equipment sector to low values of KRW 428 per ton in the precision instrument sector. The research provides useful information to help policy-makers in developing and implementing more appropriate policies regarding the management and distribution of water resources by estimating the value of water resources by sector. In addition, Korean government enables the drafting of future water pricing scenarios based on the estimated value information.