The Trade Consequences of Maritime Insecurity: Evidence from Somali Piracy

In the past decade, pirates from Somalia have carried out thousands of attacks on cargo ships sailing through the Gulf of Aden and the Indian Ocean, causing what others have identified as significant damage to maritime trade. In this paper, we use variations in the spread and intensity of Somali piracy to estimate its effect on the volume of international trade. By comparing trade volume changes along shipping routes located in pirate waters to those that are not, we estimate that Somali piracy reduced bilateral trade passing through the Gulf of Aden by 1.7-1.9 percent per year from 2000 to 2010. In addition, we find larger reductions for trade in bulk commodities, which are generally shipped by sea and are more likely to fall prey to piracy attacks. While our estimates suggest that the trade costs of piracy are much lower than what has been suggested in the existing literature, we find that they remain significant and unevenly distributed, with five countries and the European Union shouldering 70% of the total costs.