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Internal trade, productivity and interconnected industries: A quantitative analysis


  • Lukas Albrecht
  • Trevor Tombe


Does trade within a country affect welfare and productivity? What are the magnitude and consequences of costs to such trade? To answer these questions, we exploit unique Canadian data to measure internal trade costs in a variety of waysthey are large and vary across sectors and provinces. To quantify their consequences for welfare and productivity, we use a recent multi-sector trade model featuring rich inputoutput relationships. We find interprovincial trade is an important contributor to Canada's GDP and welfare, though there are significant costs to such trade. Reducing interprovincial trade costs by 10% yields aggregate gains of 0.9%; eliminating our preferred estimates of costs, gains average between 3% and 7%equivalent to real GDP gains between $50 billion and $130 billion. Finally, as policy reforms are often sector specific, we liberalize sectors one at a time and find gains are largest in highly interconnected industries.

Suggested Citation

  • Lukas Albrecht & Trevor Tombe, 2016. "Internal trade, productivity and interconnected industries: A quantitative analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 49(1), pages 237-263, February.
  • Handle: RePEc:cje:issued:v:49:y:2016:i:1:p:237-263
    DOI: 10.1111/caje.12196

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    Cited by:

    1. Andrew Agopsowicz & Bassirou Gueye & Natalia Kyui & Youngmin Park & Mohanad Salameh & Ben Tomlin, 2017. "April 2017 Annual Reassessment of Potential Output Growth in Canada," Staff Analytical Notes 17-5, Bank of Canada.
    2. Agnosteva, Delina E. & Anderson, James E. & Yotov, Yoto V., 2019. "Intra-national trade costs: Assaying regional frictions," European Economic Review, Elsevier, vol. 112(C), pages 32-50.
    3. Hakan Yilmazkuday, 2020. "Gains from domestic versus international trade: Evidence from the US," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 29(2), pages 199-210, February.
    4. Calin Arcalean & Gerhard Glomm & Ioana Cosmina Schiopu, 2019. "Urbanization, productivity differences and spatial frictions," CESifo Working Paper Series 7609, CESifo.
    5. G. Kent Fellows & Trevor Tombe, 2018. "Gains from Trade for Canada’s North: The Case for a Northern Infrastructure Corridor," SPP Communique, The School of Public Policy, University of Calgary, vol. 10(2), March.
    6. G. Kent Fellows & Trevor Tombe, 2018. "Opening Canada’s North: A Study of Trade Costs in the Territories," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 11(17), June.

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    JEL classification:

    • F1 - International Economics - - Trade


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