This thesis examines the role and demand for water in Macedonia from an economic perspective with an emphasis on agricultural use. The first paper provides an overview of the Macedonian agricultural sector and assesses the productivity growth in the period 1999-2010. In the study period, the sector experienced an average increase in volume of 1.52% per annum and a productivity growth rate of 1.34% per annum. Family farms were found to be the major contributor to overall productivity growth, despite their small and heterogeneous features.

In order to assess and understand the interaction between agriculture and the other sectors, an environmental input-output model framework, with agriculture disaggregated into 11 sub-sectors, is applied to the Macedonian economy. In the second paper it is acknowledged that the Macedonian economy is characterized by a water intensive structure, mainly focused on agriculture (rice, fruit, and grape production) and some other industrial sectors (other mining, food and beverages, and energy production). It is confirmed that the agricultural sector uses a majority of the water available, with around 38% of total water consumption, and the sector thus imposes a significant pressure to the water resource in Macedonia. In the third paper a greater transparency in terms of aggregation is achieved by using fuzzy modeling. This allows a better identification of the key water users. Still, these results suggest that agriculture and some industrial sectors practice intensive use of water resources. In the fourth paper we conduct a deeper analysis of the relationship between production and commercial trade by using the notion of virtual water. The findings reveal that due to significant net exports by vegetables, fruits, grapes, sheep and lamb, a significant amount of water exits the country (124 million m3 at 2005 level). This is not sustainable in the long-run given the water intensive structure of the agricultural sub-sectors and the scarcity of water during summer. In the final, fifth paper we assess how the direct effects of climate change on agricultural production will alter water consumption, given that the agricultural sector is the major water user. The impact of investing capital in irrigation infrastructure will support and increase the necessary water consumption. It may be necessary to introduce changes in production technology, to promote a change in agricultural specialization in the country, or revise the existing water pricing policy based on comprehensive research.