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

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

No 11670, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: gravity model; Northern Sea Route; quantitative trade models; trade and emissions; trade forecasting (search for similar items in EconPapers)
JEL-codes: C2 D58 F17 F18 R4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-tre
Date: 2016-11
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