Sea Is Rough

This is an archived version of the PW Sources newsletter from Saturday, January 6, 2024. Sign up to receive PW Sources directly to your inbox here.


Houthi-led attacks on commercial vessels in the Red Sea have caused major disruptions in maritime trade. With land-locked Ethiopia also recently signing an agreement with Somaliland to gain Red Sea access, the trade route is now the site of multiple geopolitical conflicts. 

In their 2011 book, ANOUSHIRAVAN EHTESHAMI and EMMA C. MURPHY trace the political evolution of the Red Sea region.  

“In purely military terms, US access to the Red Sea became an essential aspect of its global strategic planning during the Cold War. Two developments had encouraged this tendency in the 1980s: Somalia’s consent to allow the US Navy to stage P-3 anti-submarine flights out of Berbera to track Soviet submarines passing through the Bab el-Mandeb; and, when Egypt agreed in 1986 to grand nuclear-powered US naval vessels permission to sail through the Suez Canal. For both superpowers, the Red Sea provided the vital maritime link between the continents. According to Cold War strategists, of some 100 internationally significant choke points, there are a handful which can affect the course of a major conflict. Two of three such choke points identified in the Middle East lie along the Red Sea. The reality has not changed with the passing of the Cold War and the blockage of Red Sea choke points remains as bad for business as it does for the strategic well-being of interested actors; with over 10 percent of the world’s seaborne commerce passing through this waterway, equivalent to over 21,000 ships a day, its blockage could immediately disrupt international trade patterns. The ease with which shipping can be disrupted in this waterway was graphically demonstrated in July and August 1984, when some 18 vessels were damaged by sea mines laid near the Gulf of Suez. Almost immediately, Egypt was forced to seek outside assistance in dealing with the crisis. Thus, a mine-clearing operation was launched with direct Western support, involving the naval units of Britain, France, Italy, and the US, as well as Soviet cooperation.” 

+  “Land-locked Ethiopia is clearly looking to break its heavy dependence on Djibouti, which has handled 90% of its foreign trade since the border war with Eritrea was triggered in 1998.” A 2018 article by David Styan on port development in the Red Sea. Link. And a recent Odd Lots episode on trade impacts, with Craig Fuller from FreightWaves. Link.

+  “40% of Asia’s trade with Europe transits through the Red Sea.” Luigi Narbone and Cyril Widdershoven on shifting alliances and trade flows. Link. And Riad al Kouri on the geopolitics of the Houthi attacks. Link

“The scale of customs revenues from the Red Sea trade appears equivalent to the total combined tax income from several provinces.” Andrew Wilson on Rome and the Red Sea. Link. And Caesar Farah on Italian smuggling in the Ottoman-controlled Red Sea during the late-19th century. Link


Place-based Industrial Policy

LORENZO INCORONATO is a PhD candidate in economics at the University College of London. His job market paper looks at the long-term impact of a 1960s–70s targeted industrial policy program in Italy called Cassa per il Mezzogiorno, which aimed to reduce regional inequalities between the North and South of the country. 

From the paper:  

“The core of this industrial policy were the Industrial Development Areas (IDAs): clusters of municipalities identified as suitable for industrial agglomeration, with the goal of ‘clearly directing the location choices of economic agents’ and ‘establishing positive externalities thanks to the proximity to other industries and workers.’ Combining historical archives spanning one century with administrative data and leveraging exogenous variation in government intervention, we investigate both the immediate effects of PBIP and its long-term implications for local development. We find that the policy led to agglomeration of workers and firms in the targeted areas persisting well after its termination. By promoting high technology manufacturing, the policy boosted demand for business services and favored the emergence of a skilled local workforce. Over time, this shifted the local economy towards high-skill industries and produced a spillover from manufacturing—the only sector targeted by the program—to services employment.”

+ + +

+   “The challenges of Argentina’s external accounts are not due to faltering commercial or economic competitiveness. Rather, they can be attributed to the nation’s longstanding financial constraints.” New on PW, Ignacio Juncos on the Argentine peso. Link

+   “It was in response to the revolutionary fervor that swept Europe after the First World War that austerity was hatched as a global project.” Also new, Dillon Wamsley reviews Clara Mattei’s The Capital OrderLink.

+   “In the fifty-six years since it occupied the Strip in 1967, Israel has transformed Gaza from a territory politically and economically integrated with Israel and the West Bank into an isolated enclave, from a functional economy to a dysfunctional one, from a productive society to an impoverished one.” Sara Roy on the political economy of Gaza. Link

+   Mariano Schuster and Pablo Stefanoni on Argentina’s right-wing turn. Link. And a recent PW interview with Mercedes D’Alessandro on Milei and the future of Peronism. Link

+   Brad Setser and Theo Maret on Zambia’s debt restructuring. Link.

+   “When it comes to the type of limited-scope reforms evaluated by gold standard causal inference methods, change is hard to engineer. A dominant perspective on social change—one that forms a pervasive background for academic research and policymaking—is at least partially a myth.” Megan Stevenson reviews the limited results of fifty years of randomized control trials on criminal justice reforms. Link.

+   Colin Chia on nationalism and airline liberalization. Link

+   “We investigate the employment consequences of deindustrialization for 1,993 cities in France, Germany, Great Britain, Italy, Japan, and the United States.” By Luisa Gagliardi, Enrico Moretti, and Michel Serafinelli. Link

+   “While France already introduced the principle of the military draft in 1793 (a measure formalized in 1798), it was only under Napoléon that conscription became foundational to the country’s military system and a permanent feature of French society. Every year during Napoléon’s reign, tens of thousands of civilians were forced to abandon their homes and villages and join the army for the following several years. This system faced one major obstacle: draft evasion. This article discusses Napoléon’s response to widespread draft evasion. First, we show that draft dodging rates across France varied with geographic characteristics. Second, we provide evidence that the regime adopted a strategy of discriminatory conscription enforcement by setting a lower (higher) conscription rate for those regions where the enforcement of conscription was more (less) costly. Finally, we show that this strategy resulted in a rapid fall in draft dodging rates across France.” By Louis Rouanet and Ennio E. Piano. Link.

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