The Economics of Cross-Border Travel

Abstract

We model the decision to travel across an international border as a trade-off between benefits derived from buying a range of products at lower prices and the costs of travel. Using micro-data on Canada-US travel, we structurally estimate this model. Price differences motivate cross-border travel; a 10% home appreciation raises the propensity to cross by 8% to 26%. The larger elasticity arises when the home currency is strong, a result predicted by the model. Distance to the border strongly inhibits crossings, with an implied cost of 87 cents/mile. Geographic differences can partially explain why American travel is less exchange-rate responsive.