We are working on finalizing our paper on Somalian piracy and the effects on the shipping industry. We believe that our paper is the first serious attempt to identify the cost of piracy using a novel dataset and a novel approach. We find that the direct and indirect cost may be between $ 1.8 – $3.0 billion. This is a lot of money compared with the mere $150 – $250 million that the piracy activity generates for the pirates. This highlights how large the welfare gains from having a functioning state with working institutions and an established monopoly of power can be.
Clearly, the paper is not capturing all the adjustments that are taking place. In particular, we find that local and regional trade is a lot stronger affected by piracy then, e.g. trade from Asia to Europe. This suggests that the piracy burden is especially born by regional economies, such as Yemen, Kenya, the Seychelles and so on. This got me thinking and I started looking at the impact of piracy on the fishing industry — I first started off with Yemen, however, the data quality is very poor.
Here is something very primer…The graph depicts quarterly reported fish catches by the Ministry of Fisheries of the Seychelles and the number of piracy attacks in the vicinity of the Seychelles (roughly in a radius of around 500 miles). Do we believe that the rise in piracy was causing this drop in fish catches, which appears to be persistent?