ABSTRACT
The objective of this chapter is to estimate the economic value of the Malacca Strait, focusing on its role as one of the most important sea lanes connecting the Indian Ocean and the Southeast Asian seas. The economic value of the strait is defined as the present value of the annual transport cost savings due to the availability of the strait.
The annual transport cost savings is defined as the difference in annual total transport costs between the second best route (the Lombok for tankers and the Sunda Strait for other carriers) and the Malacca Strait, assuming that all the ships presently passing the strait take the best route in terms of transport cost. This difference may be regarded as the maximum willingness to pay (WTP) of all the ships presently passing the strait.
Finally, we present a simple model which shows the extent to which loss of the strait and the resulting rerouting of traffic causes increased transport costs. The model, with the aid of extensive transport data, is used to demonstrate feasible impacts on the competitiveness of the exports of various regions of the world.
