Explaining permanent and temporary water market trade patterns within local areas in the southern Murray–Darling Basin

The southern Murray–Darling Basin of Australia has the world’s largest and most sophisticated water markets. However, there has been little study on the drivers of permanent and temporary water market movements within local areas, or the substitution effects between groundwater and surface-water extraction over time. This topic is important as it is often claimed that water market trade patterns (especially selling large amounts of permanent water) are associated with rural decline. This study uses random-effects tobit panel models to investigate the association of regional and spatial socio-economic characteristics with temporary and permanent southern Murray–Darling Basin water market trade, using a broker panel database at postcode level from 2010/11 to 2013/14. Overall, results suggest there is no statistical significant evidence that more disadvantaged communities sold larger amounts of permanent water. Permanent water selling was statistically more likely to be associated with other spatial and land productivity characteristics, while temporary water market trade volumes were more related to water scarcity factors. In addition, there was evidence to suggest a substitution effect between rural areas selling higher volumes of permanent water and using higher volumes of groundwater.