The term 'virtual water' has been used previously to describe the volume of water embodied in food crops that are traded internationally. This paper describes the economic dimension of the 'virtual water' concept as an application of comparative advantage, with particular emphasis on water as the key factor of production. The paper also extends the discussion of 'virtual water' by describing a nation's goals regarding food security within a broader framework that includes other objectives such as providing national security, promoting economic growth, and improving the quality of life for citizens. The analysis suggests that land, labor, and capital must also be considered when evaluating a nation's production and trade opportunities. In countries where one or more of those resources is limiting, focus on 'virtual water' alone will not be sufficient to determine optimal policies for maximizing the social net benefits from limited water resources. In countries where labor is relatively abundant, public policies that promote labor-intensive crop production and processing activities may be desirable. The role of 'virtual water' within a broader policy framework is demonstrated using crop production and international trade data from Egypt, where substantial amounts of 'virtual water' and 'virtual land' are embodied in wheat and maize imports. Policies that promote increased exports of labor-intensive crops will improve rural incomes and enhance food security. (C) 2001 Elsevier Science B.V. All rights reserved.
