Melting ice caps and the economic impact of opening the northern sea route..

Blind focus on just macro and econ stuff and ignoring things like geographical changes (which then impact economics),makes the discipline so narrow. Lot of economics is driven by geographies after all whether it is economies or people, they belong to a certain geography. But the textbooks (and research) hardly mention the role of geography. So hardly things are covered in this space.

So got this newsletter from CPB Netherlands about this seminar (paper here) on the topic of Northern Sea Route. NSR apparently is a sea route along the coast of Russia which is open just for two months as it is remains frozen in rest. Now the ice seems to be melting in the region due to global warming and this means the route can remain open for most part of the year.

The paper looks at the econ implications:

A consequence of melting Arctic ice caps is the possible commercial opening of the Northern Sea Route (NSR), connecting North East Asia (i.e. Japan, Korea and China) with Northwestern Europe. In practical terms this represents a sizeable reduction in the sea route distance by around 4000 km, or roughly 40% less than the current shipping distance using the Southern Sea Route (SSR), which includes the Indian Ocean and the Suez Canal. In this paper we examine the economic impact of the opening of the NSR. In a first step we estimate bilateral geographic shipping distance reductions linked to the NSR. 

We then link shipping distance reductions to projected changes in trade volumes and implied total (non-shipping) distance costs using a regression-based gravity model. As a last step of our analysis we integrate both estimates into a computational general equilibrium (CGE) model of the global economy  to assess the impact on bilateral trade flows, sectoral output, overall welfare, and employment/wage changes.

We also analyze the changes that shorter shipping routes have on transport related pollution levels, which depend on both shorter distances but also on potentially larger trade volumes. The redirection of trade has major geopolitical implications linked to both a dramatic drop in traffic taking the SSR (and so passing through Suez) and high volume traffic along ecologically sensitive Arctic routes.

The distance will be cut by a  large margin and could lead to manifold gains in trade. Though this melting will lead to other issues as well of flooding etc.

Youngil Cho of KOrea Maritime Institute discusses the issue using maps and pictures which obviously do a better job than text and equations..

The Global crisis has shifted the attention away from these climate change issues which can play a far changing game. This literature was gaining focus and attention till  the crisis occurred. This does not mean the climate changes have stopped. We just don’t know what is happening on this front and only seem to care about where markets are falling  or rising…

Much of climate change studies are discarded by econs based on flawed assumptions/ methodology and so on. But isn’t much of economics based on the same?

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