United States Department of Transportation
i
The U.S.-Canada Border Effect : Smaller Than Previously Thought and Becoming Smaller
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2012-05-30
[PDF-1.74 MB]
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Alternative Title:The U.S.-Canada Border Effect was Smaller than Previously Thought, and Has Becoming Even Smaller
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Edition:Final report.
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Abstract:We revisit the effect of the U.S.-Canada national border on trade, considering to what extent the border reduces trade when observable economic factors are controlled. A reexamination of the data yields estimates of the border effect that are 50% higher than previously expected (Feenstra, 2004); however, the nonlinearity of the estimation and distance measure reduce the effect by 65%. We therefore conclude that the border effect in 1993 had a factor of 4.10. This figure is 15% lower than the effect proposed by previous research. We also calculate the border effect for subsequent years and find that this effect steadily decreased to a low of 3.21 in 2007. Interestingly, a traditional linear methodology cannot be used to identify this decline clearly.
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