Measuring Economic Impacts of Changes in the Water System: Linking Economic and Water 
Models of Pakistan

Sheman Robinson, IFPRI, Washington D.C

This paper describes the potential impact on the economy of Pakistan of building the 
Diamer-Basha dam. An integrated system of economic and water simulation models is applied to 
Pakistan to analyze the economywide impacts of changes in water resources in the Indus river 
basin, focusing on agricultural and hydropower benefits provided by the Daimer-Basha dam 
under different climate scenarios. The model framework links separate economic and water 
models, drawing on the strengths of both approaches without having to compromise by 
specifying either a simplified treatment of water in an economic model or simplified 
economics in a water model. The model system is used to simulate economic growth and changes 
in water resources over the long run, incorporating impacts on agriculture and hydropower. 
The results of scenario analysis indicate that the Diamer-Basha dam would improve the 
resilience of Pakistan to adapt to climate shocks, providing increased hydropower capacity 
and enhanced ability to manage the water system to offset climate-induced variation in river 
flows. Given the modest amount of existing water storage capacity in the Indus basin, 
extreme events such as an extended drought overwhelm the water management system, and the 
proposed Diamer-Basha dam only partly offsets the negative impacts.