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Going the distance: Estimating the effect of provincial borders on trade when geography (and everything else) matters

Author

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  • Robby K. Bemrose
  • W. Mark Brown
  • Jesse Tweedle
Abstract
. In the presence of often‐cited provincial non‐tariff trade barriers, one should observe provincial border effects in Canada. However, using provincial trade data leads to upward biased estimates of the border effect, because intraprovincial trade is skewed towards short distance flows that are poorly estimated by gravity models. We overcome this bias by using sub‐provincial trade flows generated from a transaction‐level transportation dataset. The results show that border effects fall as geographies are more fine‐grained and uniform. In contrast to the US, where state border effects were eliminated using similar approaches, provincial border effects remain, with an implied 6.9% tariff equivalent. Résumé. Tenir la distance: estimation de l’effet frontalier provincial sur le commerce en tenant compte de la géographie. Lorsque l’on aborde la question très discutée des obstacles non‐tarifaires aux échanges commerciaux, il convient d’observer l’effet des frontières provinciales au Canada. L’utilisation de données commerciales interprovinciales se traduit néanmoins par des biais par excès au niveau de l’effet frontalier, les flux de courtes distances étant surreprésentés et mal évalués par les modèles gravitaires. Afin de résoudre ce problème d’écart systématique par excès, nous utilisons des données commerciales infraprovinciales issues d’un ensemble de données transactionnelles relatives au transport. Nos résultats montrent que l’effet frontalier diminue dès lors que les unités géographiques sont plus petites et uniformes. En utilisant les mêmes approches, on constate que l’effet frontalier disparaît aux États‐Unis. En revanche, au Canada, l’effet frontalier persiste avec un équivalent tarifaire implicite de 6,9 %.

Suggested Citation

  • Robby K. Bemrose & W. Mark Brown & Jesse Tweedle, 2020. "Going the distance: Estimating the effect of provincial borders on trade when geography (and everything else) matters," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(3), pages 1098-1131, August.
    • Handle: RePEc:wly:canjec:v:53:y:2020:i:3:p:1098-1131
    DOI: 10.1111/caje.12466
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    Cited by:

    1. Cletus C. Coughlin & Dennis Novy, 2021. "Estimating Border Effects: The Impact Of Spatial Aggregation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1453-1487, November.
    2. Moghaddam, Mohsen Bakhshi, 2023. "The relationship between oil price changes and economic growth in Canadian provinces: Evidence from a quantile-on-quantile approach," Energy Economics, Elsevier, vol. 125(C).
    3. Saileshsingh Gunessee & Cheng Zhang, 2022. "The economics of domestic market integration," Journal of Economic Surveys, Wiley Blackwell, vol. 36(4), pages 1069-1095, September.

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