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

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  • Hugo Rojas-Romagosa
  • Eddy Bekkers
  • Joseph F. Francois

Abstract

A consequence of melting Arctic ice caps is the commercial viability of the Northern Sea Route, connecting North-East Asia with North-Western Europe. This will represent a sizeable reduction in shipping distances and a decrease in the average transportation days by around one-third compared to the currently used Southern Sea Route. We examine the economic impact of the opening of the Northern Sea Route in a multi-sector Eaton and Kortum model with intermediate linkages. This includes a remarkable shift of bilateral trade flows between Asia and Europe, diversion of trade within Europe, heavy shipping traffic in the Arctic, and a substantial drop in traffic through Suez. These global trade changes are reflected in real income and welfare effects for the countries involved. The estimated redirection of trade has also major geopolitical implications: the reorganisation of global supply chains within Europe and between Europe and Asia, and the highlighted political interest and environmental pressure on the Arctic.

Suggested Citation

  • Hugo Rojas-Romagosa & Eddy Bekkers & Joseph F. Francois, 2015. "Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route," CPB Discussion Paper 307, CPB Netherlands Bureau for Economic Policy Analysis.
    • Handle: RePEc:cpb:discus:307
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    JEL classification:

    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F18 - International Economics - - Trade - - - Trade and Environment

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