Urbanization is an engine of economic development, but this process is often constrained by increasingly scarce water resources. A model predicting the drag effect of water consumption on urbanization would be useful for future planning for sustainable water resource utilization and economic growth. Using panel data from 11 provinces in China’s Yangtze River economic belt (YREB) from 2000 to 2015, we apply Romer’s growth drag theory with spatial econometric models to quantitatively analyze the drag effect of water consumption on urbanization. The results show the following. (1) The drag effect of water consumption on urbanization has significant spatial correlation; the spatial Durbin model is the best model to calculate this spatial connection. (2) The spatial coefficient is 0.39 and the drag that is caused by water consumption on urbanization in the YREB is 0.574, which means that when spatial influences are considered, urbanization speed slows by 0.574% due to water consumption constraints. (3) Each region in the YREB has different water consumption patterns and structure; we further calculate each region’s water consumption drag on urbanization. We find that areas with high urbanization levels, like Shanghai (average 84.7%), have a lower water consumption drag effect (0.227), and they can avoid the “resource curse” of water resource constraints. However, some low-level urbanization provinces, like Anhui (average 39.3%), have a higher water consumption drag effect (1.352). (4) Our results indicate that the water drag effect is even greater than the drag effect of coal and land. Therefore, policies to increase urbanization should carefully consider the way that water constraints may limit growth. Likewise, our spatial model indicates that policy makers should work with neighboring provinces and construct an effective regional water cooperation mechanism.

As one of the most dynamic natural elements, water resources play a vital role in both ecological and economic activities. The rational allocation of water resources is essential for the sustainable development of human society. Using data from prefecture-level cities in the Yangtze River Economic Belt from 2013 to 2022, this study employs the Cobb–Douglas (C-D) production function to measure the degree of water resource allocation distortion across provinces and cities. Additionally, a panel data model is applied to analyze the influencing factors. The key findings are as follows: The issue of excessive water resource allocation is widespread in the Yangtze River Economic Belt, with the highest degree of distortion observed in the middle reaches, where the average distortion index reaches 1.43—significantly higher than that in the upstream (1.15) and downstream (1.20) regions. Water resource endowment, the South-to-North Water Diversion Project, and rising water prices contribute significantly to improving water resource allocation, whereas increased industrial water use efficiency and excessive government intervention exacerbate allocation distortions. Regionally, the influencing factors exhibit broadly similar effects across provinces. In sectoral analysis, only the estimated coefficients of water resource policies show directional differences, whereas other factors have no significant impact on allocation distortion. By identifying the extent and causes of water resource misallocation, this study provides empirical evidence to support region-specific water management strategies, aiming to enhance resource efficiency and promote sustainable development.