Working Paper: CEPR ID: DP15414
Authors: Kerem Cosar; Benjamin Thomas
Abstract: Motivated by the historically tense geopolitical situation in Southeast Asia, we simulate the potential closure of key maritime waterways in the region to predict the impact on trade and welfare. We generate initial (unobstructed) and counterfactual (rerouted) least-cost maritime paths between trading countries, and use the distances of these routes in a workhorse model of international trade to estimate welfare effects. We find heterogeneous and economically significant reductions in real GDP, and show the magnitude of welfare loss is directly correlated with military spending as a proportion of GDP, suggesting nations may be responding to economic security threats posed by such potential conflicts.
Keywords: international trade; quantitative trade models; military spending
JEL Codes: F5; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| closure of maritime routes (F55) | welfare losses (D69) |
| closure of maritime routes (F55) | GDP reductions (F69) |
| military spending (H56) | welfare losses (D69) |
| military spending (H56) | GDP reductions (F69) |
| closure of maritime routes (F55) | global trade dynamics (F19) |
| military spending (H56) | perceived economic security threats (F52) |
| geographical distance to conflict zones (F51) | welfare losses (D69) |