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

• Main Authors: Bekkers, Eddy, Francois, Joseph, Rojas-Romagosa, Hugo
• Format: Report
• Language: unknown
• Subjects: Arctic; Northern Sea Route
• Online Access: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11670

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. gravity model; Northern Sea Route; quantitative trade models; trade and emissions; trade forecasting