Water constraint mitigation and agricultural productivity: Evidence from the China’s South-to-North Water Diversion Project

Water scarcity is a critical constraint on agricultural productivity, particularly in northern China. The South-to-North Water Diversion (SNWD) project, launched in 2014, aims to alleviate this constraint by reallocating water resources across regions. This study evaluates the long-term impact of the SNWD project on regional Agricultural Total Factor Productivity (ATFP) by employing a two-step approach based on Data Envelopment Analysis (DEA) and a Difference-in-Differences (DID) framework. First, we construct a comprehensive efficiency indicator based on DEA methodology to measure ATFP. Second, we exploit the opening of the middle route of the SNWD project as a quasi-natural experiment and estimate its impact on ATFP through a DID model. The results show that the SNWD project has increased the ATFP in the traversed counties by 0.412 (13.55 %). Moreover, the SNWD project has a stronger effect on enhancing ATFP in counties with lower precipitation and non-rice-producing counties, which indicates that the SNWD project can significantly improve ATFP by mitigating water scarcity. Additionally, the SNWD project has a more significant impact on improving ATFP in regions with a higher proportion of grain crops, revealing the crucial role of structural adjustments in enhancing agricultural productivity.