Discussion Paper Details

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Title: Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route

Author(s): Eddy Bekkers, Joseph Francois and Hugo Rojas-Romagosa

Publication Date: November 2016

Keyword(s): gravity model, Northern Sea Route, quantitative trade models, trade and emissions and trade forecasting

Programme Area(s): International Trade and Regional Economics

Abstract: One consequence of melting Arctic ice caps is the commercial viability of the Northern Sea Route, connecting East Asia with Europe. This represents a sizeable reduction in shipping distances and average transportation days, compared to the conventional Southern Sea Route. We examine the economic impact of opening this route in a multi-sector Eaton-Kortum model with intermediate linkages. We find remarkable shifts in trade flows between Asia and Europe, diversion of trade within Europe, heavy shipping traffic in the Arctic and a substantial drop in Suez traffic. Projected shifts in trade also imply substantial pressure on an already threatened Arctic ecosystem.

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Bibliographic Reference

Bekkers, E, Francois, J and Rojas-Romagosa, H. 2016. 'Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route'. London, Centre for Economic Policy Research.