Do National Borders Really Matter? Canada-Us Regional Trade Reconsidered

Abstract

This paper reconsiders the Canada-US border's effect on trade. We first test whether findings of McCallum (1995) and Helliwell (1995)--that the border substantially decreases trade--change when different, better, data are used. We find that the "border effect" may be substantially less than previously measured--up to 50% smaller--but remains surprisingly large. Second, we weigh an explanation of the border's effect. Transportation equipment offers a natural experiment, as North American trade has been completely liberalized for several decades. We find a higher border effect for these freely traded goods, which rules out standard protection as the border effect's cause.

JEL Classification: F13, F14, F15