declining since 2010. World trade values decreased by 13%, from USD 19 trillion in 2014 to USD 16.5 trillion in 2015; seaborne trade volume increased by 2.1% in 2015 (ITF/OECD, 2017).

The majority of the literature that studies factors affecting value-to-weight ratio (Martínez et al., 2015; Ong & Sou, 2015) shows that an increase in transport costs, within certain boundaries, will cause a decrease in trade volume (by weight) of commodities for the same trade values (monetary). However, the scale of the decrease will differ by country, commodity, transport mode, and trade route. Section 3.3 details the possible impacts of increasing transport costs on the volume of trade.

# **2.2.4 International trade and economies of States**

The linkage between transport costs and economic performance of a region has been studied extensively. From a trade modeling perspective, transport costs are one of the main determinants of trade costs (Bachmann, 2017; Brocker & Kancs, 2001; de Jong et al., 2017; Johansen & Hansen, 2016). This, in turn, can impact the magnitude of trade activities and its spatial distribution between regions. Tanabe et al. (2016) show that a 35% reduction in border crossing time can reduce the total trade costs between China and Central Asian countries. In this context, it has been estimated that such time-savings could increase trade flows between the two regions by 10-90%, depending on transport infrastructure and the projected production and consumption of these countries.<sup>4</sup> On the contrary, an increase in travel time due to congestions can increase trade costs, which can lead to a decline in trade volume between China and Central Asia. it can be inferred from this that any global level GHG mitigation measure that impacts trade costs would have the potential to influence the volume of international trade and the economies of States.

Within the context of international trade, producing regions whose cost structures imply relatively higher import costs for the consuming regions will become less attractive for certain importers. Existing trade relationship are likely to be reconsidered and other producers from competing regions, which produce the same commodities, might be favored; consumers will substitute products from different producers depending on changes in import prices and according to the elasticity of substitution.

Figure 5 illustrates the impact of GHG mitigation measures on import prices of goods and import volumes of State A from States B and C. Suppose, in the baseline scenario, where there is no GHG mitigation measure being applied, State A imports more commodity from State B (70 ton) than State C (30 ton) since the import prices from State B is relatively cheaper than State C (left picture). In the policy scenario, a GHG mitigation measure may increase the prices of the goods that State A imports from States B and C.

This condition may lead to a shift of volume of demand from State B to State C. As a result, State C will see an increase in the volume of commodities exported to State A, whereas State B may lose export volume to State A. Eventually, State C‘s GDP may increase, whereas State B may suffer a decline in its GDP. Note that increased import prices from both States B and C may also cause an increase in the consumption of domestic products due to consumers in State A substituting domestic for foreign commodities. This may positively impact State A’s GDP, if the increase in domestic consumption is higher than the decrease in productivity and consumption due to higher prices.

4 The wide range of increase in trade flows is due to multiple countries in Central Asia seeing varying increases in trade flows. It is noteworthy that the effect of changes in travel time on trade flows is not linear. As a consequence, an increase in transport costs due to GHG mitigation measures may not necessarily result in the reduction of trade flows with the same magnitude as that which is induced by reduction in travel time.

8