The Economic Role of Water in FYR Macedonia: An Input-Output Analysis and Implications for the Western Balkan Countries

Sustainable management of water resources is imperative in the Western Balkan (WB) region, due to the seasonal, spatial and quality distribution of these resources. This paper analyzed water consumption and associated relationships between the economic sectors in Macedonia in 2005, based on input-output (IO) analysis. Using an environmentally extended IO framework, water consumption was investigated by developing several indicators. Disaggregation of the agriculture sector into 11 sub-sectors, combined with backward and forward linkage analysis, allowed us to identify rice, fruits, grapes and wine, other crop and cattle production as key water-consuming sub-sectors. The developed indicators revealed a high proportion of direct water consumption in agriculture and some other non-agricultural sectors such as mining and quarrying, other mining and quarrying products, food products and beverages as well as electrical machinery, which imposed significant pressure on natural water resources in Macedonia. Therefore, changes in production technology and specializations in Macedonia toward less water-intensive options are needed to ease the pressure on natural water resources. Extending the existing water pricing policy to capture economic, social and environmental aspects should also be considered. Moreover, the development and construction of water accounts and the disaggregation procedure have valuable implications for the WB countries. Applications elsewhere following this Macedonian example can provide a meaningful understanding of the role of water and interdependencies at regional level and increase awareness of the water resource availability at trans-boundary scale.