WWC 2008-Abstract Identifier No : 613 ( Language English) Environmental Kuznets Curve for Irrigation and its Implications for Agricultural Water Demands: a 20-years of Cross-Country Analysis for 65 Tropical countries Madhusudan Bhattarai Agricultural Economist; AVRDC -The World Vegetable Center P. O. Box 42, Shanhua, Tainan, Taiwan 74199, ROC; Phone (+ 886-6) 583-7801 Ext 460 (O), Fax: (+886-6) 583- 0009 ; E-mail : madhu.bhattarai@netra.avrdc.org.tw ; or; madhu.bhattarai@worldveg.org ABSTRACT: Using framework of Environmental Kuznets Curve (EKC) hypothesis, this paper evaluates relationship between irrigation and income across developing countries; and factors affecting the income-irrigation relationship. The EKC hypothesis for irrigation implies that irrigation demand will be greater at the initial development stage, but subsequently it declines as the income increases. The relationship between irrigation and income is analyzed across 66 countries from Asia Africa and Latin America and from 1972-92. The empirical results provide a strong evidence for an EKC type of relationship for irrigation (percent of crop area irrigated) for both Asia and combined of 66 countries, which implies that income elasticity of irrigated area is a nonlinear. This means that there is no leapfrogging type of jump in the irrigation and agricultural development process. The information on income elasticity of irrigation has huge implications for analyzing demand for irrigated area, deriving water demand in agriculture and other sectors, and for planning water uses (allocation) across sectors. This is also important for improved understanding of irrigation impacts in the societies. 1. Introduction In the face of increasing water scarcity, sustainable management of limited available freshwater resources and their easy and equitable access to all are now major water sector public policy concerns. The irrigation sector, which consumes more than 80 percent of the total consumptive use of water worldwide, is a focus of discussion among water professionals worldwide to alleviate the water-scarcity problem. But, so far, very limited information is available on societal decision for irrigation, and how economic and institutional factors affect an economy-wide demand for (or supply of) irrigation and in turn demand for water uses. In reality, water uses and water (re)allocation across the sectors are linked with overall economic development level of a society; but these issues have, so far, been inadequately addressed in the literature. In this context, this study evaluates the relationship between irrigation and the societal income level using cross-country level of analysis across the 66 countries in the tropics. The empirical analysis is done by adopting hypothesis and analytical framework of Environmental Kuznets Curve (EKC), which conjectures that environmental quality deteriorate at the early stage of development and it starts to improve when the societal income reaches a critical level. Earlier, Simon Kuznets (1955) proposed an inverted U-shaped relationship between income inequality and economic growth, and put forwarded a view that in the early stages of development, as societal income (per capita income) grows income inequality is hypothesized to increase, but beyond a critical income level the inequality would decline. Thus, this process leads to an inverted U-shaped relationship between level of income inequality and level of income in an economy, which is popularly known as the Kuznets Curve for which S. Kuznets was awarded the Nobel Prize in economics in 1971. More recently, environmental economists have built on this notion by hypothesizing the same type of relationship between level of environmental degradation and income. This has become known as the Environmental Kuznets Curve (EKC), particularly after the seminal work of Grossman and Kruger in 1991. The EKC framework of analysis offers policy options on sustainable management of the resources,