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The Economics of Cross-Border Travel

Author

Listed:
  • Ambarish Chandra

    (University of Toronto)

  • Keith Head

    (University of British Columbia and CEPR)

  • Mariano Tappata

    (University of British Columbia)

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. We estimate the model using microdata on Canada–United States travel. 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 per mile. Geographic differences can partially explain why American travel is less exchange rate responsive. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • Ambarish Chandra & Keith Head & Mariano Tappata, 2014. "The Economics of Cross-Border Travel," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 648-661, October.
    • Handle: RePEc:tpr:restat:v:96:y:2014:i:4:p:648-661
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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00404
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    Citations

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    Cited by:

    1. Richard Friberg & Frode Steen & Simen A. Ulsaker, 2022. "Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 408-438, May.
    2. Askarov, Zohid & Doucouliagos, Hristos, 2015. "Spatial aid spillovers during transition," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 79-95.
    3. Ding, Ding & Timmer, Yannick, 2023. "Exchange rate elasticities of international tourism and the role of dominant currency pricing," Journal of International Money and Finance, Elsevier, vol. 137(C).
    4. Baggs, Jen & Fung, Loretta & Lapham, Beverly, 2018. "Exchange rates, cross-border travel, and retailers: Theory and empirics," Journal of International Economics, Elsevier, vol. 115(C), pages 59-79.
    5. Zheng Fang, 2021. "A Unifying Framework for Testing Shape Restrictions," Papers 2107.12494, arXiv.org, revised Aug 2021.
    6. Roberta Capello & Andrea Caragliu & Ugo Fratesi, 2018. "Breaking Down the Border: Physical, Institutional and Cultural Obstacles," Economic Geography, Taylor & Francis Journals, vol. 94(5), pages 485-513, October.
    7. (Sam) Kim, Seongseop & Prideaux, Bruce & Timothy, Dallen, 2016. "Factors affecting bilateral Chinese and Japanese travel," Annals of Tourism Research, Elsevier, vol. 61(C), pages 80-95.
    8. David Boto-García & Veronica Leoni, 2023. "Distance Traveled in Times of Pandemic: An Endogenous Switching Regression Approach," Tourism Economics, , vol. 29(3), pages 571-595, May.
    9. Hindriks, Jean & Serse, Valerio, 2019. "Heterogeneity in the tax pass-through to spirit retail prices: Evidence from Belgium," Journal of Public Economics, Elsevier, vol. 176(C), pages 142-160.
    10. Friberg, Richard & Halseth, Emil M. Strøm & Frode, Steen & Ulsaker, Simen A., 2022. "The effect of cross-border shopping on commodity tax revenue: Results from a natural experiment," Discussion Paper Series in Economics 9/2022, Norwegian School of Economics, Department of Economics.
    11. Jen Baggs & Eugene Beaulieu & Loretta Fung & Beverly Lapham, 2016. "Firm Dynamics in Retail Trade: The Response of Canadian Retailers to Exchange Rate Shocks," Review of International Economics, Wiley Blackwell, vol. 24(3), pages 635-666, August.
    12. Ngo, Thanh, 2017. "Exchange rate exposure of REITs," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 249-258.
    13. SOHN Christophe & LICHERON Julien, 2015. "From barrier to resource? Modelling the border effects on metropolitan functions in Europe," LISER Working Paper Series 2015-08, Luxembourg Institute of Socio-Economic Research (LISER).
    14. Piera Bello, 2017. "Exchange rate fluctuations and border crossings: evidence from the Swiss-Italian border," IdEP Economic Papers 1701, USI Università della Svizzera italiana.
    15. Keaton Miller & Boyoung Seo, 2021. "The Effect of Cannabis Legalization on Substance Demand and Tax Revenues," National Tax Journal, University of Chicago Press, vol. 74(1), pages 107-145.
    16. Jordi Suriñach & Josep A. Casanovas & Marién André & Joaquim Murillo & Javier Romaní, 2017. "How to quantify and characterize day trippers at the local level," Tourism Economics, , vol. 23(2), pages 360-386, March.
    17. Thomas M. Fullerton & Adam G. Walke, 2019. "Cross-Border Shopping and Employment Patterns in the Southwestern United States," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 1-19, October.

    More about this item

    Keywords

    cross-boarder travel; microdata; Canada; United States; home appreciation; exchange rate;
    All these keywords.

    JEL classification:

    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • F10 - International Economics - - Trade - - - General

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