The fragility of the global trading system
ISSN
2042-2695
Type
working paper
Date Issued
2026-05-27
Author(s)
Abstract
We use a parsimonious gravity framework to simulate and compare five potential shocks to the global shipping system: closures of the Panama Canal, the Suez Canal, and the Strait of Malacca, and openings of the Northwest Passage and a hypothetical Kra Canal. Applying a single, consistent methodology across all five scenarios allows relative comparisons. Using carefully measured seaborne distances between ports under each hypothetical geography, we find that a Panama closure would be the most consequential shock, reducing global trade by nearly 3% compared to a default gravity prediction, followed by Suez (2.5%), Malacca, (1.7%), a Kra opening (+0.7%), and the Northwest Passage (+0.6%). Aggregate GDP and welfare effects are more muted, but show sizable heterogeneity across countries. For example, Panama loses over 9% of GDP from a Panama closure, Egypt and Sudan over 5% from Suez, and Malaysia over 4% from Malacca.
Keywords
gravity
panama
suez
kra
malacca
northwest passage
HSG Classification
contribution to scientific community
Refereed
No
Publisher
Centre for Economic Performance; London School of Economic and Political Science
Volume
CEPDP2186
Subject(s)
Division(s)
File(s)![Thumbnail Image]()
Name
Canals Working Paper.pdf
Size
1019.56 KB
Format
Adobe PDF
Checksum (MD5)
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