The Theory of TERM-H2O

Abstract

TERM-H2O is a dynamic variant of TERM with agricultural detail adapted to include regional water accounts. This chapter describes: (a) the technology assumptions in TERM-H2O for farm industries, (b) the creation of an input-output database for farm industries including inputs of water, (c) the derivation of input demand functions for farm industries and their calibration using farm sector input-output data, and (d) assumptions concerning mobility of capital, land, owner-operator labour and hired labour between farm industries. A key assumption is that irrigable land in TERM-H2O can be used either as an input of irrigated land or an input of dryland, with the division determined endogenously via water availability.