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I am asking this question in light of climate change mitigation. I am working with the assumption that many ways of emitting green house gases can be stopped with better technologies. Electric cars combined with nuclear or hydro power are currently a much talked about example.

To come back to the topic: if we assume that many emission-saving measures will not change the world economy so much, because they will "locally" replace each car or steel factory, then the world of the future will be very similar to the world of today. (I consider electric cars an example where the climate-friendly replacement will (after some more refinement of the technology) be not more expensive than the fossil-fuel powered status quo; therefore no big change in the role of cars in the world.)

If we further assume, that ocean shipping will be done either by nuclear-powered cargo ships or with some artificially-generated or carbon-compensated fuel, then it seems likely that transport costs will raise a lot. For many goods, it would become uneconomic to ship them far, so I wonder which industries would be first affected by this? and which industries would be affected most in the long-term?

As a final example, most cars are currently produced on the continent (or at least global world region) where they are sold. Even though shipping of cars exists, the mass automakers conquer foreign markets by creating a factory there.

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  • $\begingroup$ You may possibly try doing a CGE model with GTAP, I have seen some similar analyses being done with it $\endgroup$ Jan 29, 2023 at 21:31

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How would the world economy change if intercontinental transport was five times more expensive than today?

Generally that would lead to less trade and countries being poorer as a result since trade occurs when people somewhere else can produce something more efficiently than people can domestically or when people have taste for variety.

How much less trade and how big the decline in material living standards will be is difficult to estimate for some far fetched scenario such transportation cost suddenly being 5 times higher than their current level. So it is difficult to put any number on it. There wont be any preexisting modeling of such scenario, and modeling international economy is too difficult to do it for fun/quick answer.

There are some studies that show that transportation cost, although having significant effect on trade, are not necessary major important factor determining increase and by extension also decrease in global trade (Hummels, 2007). There are others that estimate larger impact. Then the impact on national incomes of countries will depend on how much benefit from economies of scale, specialization and so on is lost.

For many goods, it would become uneconomic to ship them far, so I wonder which industries would be first affected by this? and which industries would be affected most in the long-term?

Again this is difficult/not possible to predict for such scenario. Here are some important points to keep in mind:

  • In each country different industries are differently exposed to trade costs. German car industry that mostly relies on trade with other Central European countries such as Slovakia, Czech Republic or Hungary will be affected less than lets say South Korea car industry that has more international supply chain. Hence you have to look at each country at a time and examining every industry in every country in the world is beyond a scope of se answer.

  • Any industry level economic forecasting for time period more than about 10 years will be too imprecise to be of any use.

You can say that firms which have the highest exposure to trade and face elastic demand for their goods will be hit hardest first. In long-term firm that find hardest to substitute for what ever advantage they were deriving by trading will be hit hardest.

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