Abstract

This chapter explores the economic effects of long-term droughts on agriculture and urban water supply sectors in Chile, with a particular focus on the ongoing megadrought that started in 2010. Using a comprehensive framework that incorporates Infrastructure Capacity (IC), the Amount of Water in Storage (AWS), and adaptation strategies, we offer a detailed analysis of resilience mechanisms and the economic impacts of drought conditions. Our findings underscore the critical balance between water availability and economic sustainability, revealing both the challenges and successes in the sectors’ adaptive responses. The agricultural sector’s evolution towards more sustainable practices and the urban water supply sector’s strategic investments highlights significant progress in drought resilience. However, the potential for future tipping points in water scarcity underscores the urgent need for integrated water resource management, sustainable agricultural practices, and the strategic allocation of resources to prevent critical shortages. This chapter provides recommendations for managing the economic impacts of long-term droughts in Central Chile, both present and future.