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An Empirical Evaluation of the Effect of Covid-19 Travel Restrictions on Canadians' Cross Border Travel and Canadian Retailers

Author

Listed:
  • Jen Baggs

    (University of Victoria)

  • Loretta Fung

    (National Tsing Hua University)

  • Beverly Lapham

Abstract

This paper estimates the impact on Canadian retailers' revenues of significantly decreased international travel by Canadians in response to the Covid-19 related travel restrictions imposed on the US-Canada border. We use detailed data from 1991 to 2020 on Canadians' travel to the United States to estimate the monthly fraction of a community's residents who cross the border for 237 communities within 150 kilometers of the border. We estimate the model of cross-border travel from Baggs, Fung and Lapham (2018) and use those estimates to establish community-level counterfactual crossing rates had the pandemic not occurred. We then combine those rates with actual crossing rates to estimate the revenue losses that small Canadian retailers' avoided due to the near cessation of cross-border travel by Canadians as a result of the pandemic. Our results suggest that, on average, the border closure prevented a 1.7% decrease in revenues for a small Canadian retailer located within 150 kilometers of the border. However, we document considerable variation in the magnitude of this decrease across communities and retail sectors, with estimates ranging from approximately 0% to 234%. Specifically, retailers that are located in less affluent communities near sizeable US shopping opportunities and that are in sub-sectors that cater to travelers experienced the largest foregone revenue losses due to border closures in 2020.

Suggested Citation

  • Jen Baggs & Loretta Fung & Beverly Lapham, 2021. "An Empirical Evaluation of the Effect of Covid-19 Travel Restrictions on Canadians' Cross Border Travel and Canadian Retailers," Working Paper 1457, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1457
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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/wpaper/qed_wp_1457.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Asplund, Marcus & Friberg, Richard & Wilander, Fredrik, 2007. "Demand and distance: Evidence on cross-border shopping," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 141-157, February.
    3. Zorzi, Michele Ca’ & Rubaszek, Michał, 2020. "Exchange rate forecasting on a napkin," Journal of International Money and Finance, Elsevier, vol. 104(C).
    4. Jeffrey R. Campbell & Beverly Lapham, 2004. "Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U. S.-Canada Border," American Economic Review, American Economic Association, vol. 94(4), pages 1194-1206, September.
    5. J. Stephen Ferris, 2010. "Quantifying Non-Tariff Trade Barriers: What Difference Did 9/11 Make to Canadian Cross-Border Shopping?," Canadian Public Policy, University of Toronto Press, vol. 36(4), pages 487-501, December.
    6. Sharma, Piyush & Leung, T.Y. & Kingshott, Russel P.J. & Davcik, Nebojsa S. & Cardinali, Silvio, 2020. "Managing uncertainty during a global pandemic: An international business perspective," Journal of Business Research, Elsevier, vol. 116(C), pages 188-192.
    7. Marcus Keogh-Brown & Richard Smith & John Edmunds & Philippe Beutels, 2010. "The macroeconomic impact of pandemic influenza: estimates from models of the United Kingdom, France, Belgium and The Netherlands," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 11(6), pages 543-554, December.
    8. Ferris, J. Stephen, 2000. "The Determinants of Cross Border Shopping: Implications for Tax Revenues and Institutional Change," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 801-24, December.
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    10. J. Stephen Ferris, 2009. "Quantifying Non-tariff Trading Barriers: What Difference Did the U.S. Security Precautions Following 9/11 Make to Canadian Cross Border Shopping? -revised version: Quantifying Non-Tariff Trade Barrier," Carleton Economic Papers 09-04, Carleton University, Department of Economics, revised Dec 2010.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Covid-19; Border Policies; Cross Border Shopping; International Price Differences;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

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