Overcoming distance, overcoming borders: Comparing North American regional trade

In 1993 - four years after the initial implementation of free trade - Canada had achieved about one-half of its potential level of trade with the United States, according to a new study.

The study, which measured the integration between the Canadian and US economies through trade, showed that trade between US states in 1993 was on average twice as strong as cross-border trade between the two nations. If Canada had been fully integrated into the US market at the time, cross-border trade would have been on par with trade among US states, after controlling for the size of the economies of provinces and states and the distance between them, among other factors.

The study found that although the border remained a significant barrier to trade, its influence was much less than estimates made by previous studies.

This study is one of the first to effectively compare the entire breadth of inter-regional trade flows in North America, in this case for 1993. It also measures the extent of trade between Canadian provinces.

Tariff and non-tariff barriers to trade still had a substantial effect on Canada-US trade in 1993. The border's effect was weakest for the transportation equipment sector, and the paper products and lumber and wood products sectors. These are sectors in which barriers to trade have been eliminated for a long time, or where Canada has a strong comparative advantage. The border effect was strongest in food products, textiles and apparel sectors, where barriers to trade remained in 1993.

The study also found that the degree of economic integration among provinces was much stronger than among US states. Interprovincial trade was on average six times stronger than interstate trade, after controlling for the economic sizes of provinces and states and the distances between them. For all industrial sectors, interprovincial trade was stronger than interstate trade, all else being held constant. Relative to the United States, Canada is a highly integrated economy.

This finding is explained by the fact that the US economy is much larger and denser than Canada's. For example, California's population and economy are larger than Canada's, and New York and Texas are not far behind.

American firms do not have to look as far to expand their markets as their Canadian counterparts do. As long as the border remains a barrier to trade, Canadian firms will have to trade over long distances to expand their markets or to find the products that they require. The strength of interprovincial trade, compared with interstate trade, is a reflection of this fact.

The economic analysis research paper Overcoming distance, overcoming borders: Comparing North American trade (11F0027MIE2003008, free) is now available on Statistics Canada's website (http://www.statcan.gc.ca). From the Our products and services page, under Browse our Internet publications, choose Free, then National accounts.

Also available on Statistics Canada's website is information on related papers in economic geography (http://www.statcan.gc.ca/english/studies/eaupdate/geo.htm).

For more information, or to enquire about the concepts, methods or data quality of this release, contact Mark Brown (613-951-7292), Micro-Economic Analysis Division.