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Non-tradable goods and the border effect puzzle

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  • Liu, Xiaoyun
  • Whalley, John
  • Xin, Xian

Abstract

The surprisingly high Canada-U.S. border effect estimated by McCallum has been puzzling trade economists in the last ten years. We argue in this paper that conventional estimates of the border effect without consideration of non-tradable goods can overstate the trade reducing effect of the national border and the impacts can be considerable. We then explore the Canada-U.S. case with a numerical general equilibrium model with parameters calibrated to 2001 data. Our counterfactual experiment results suggest that after adjusting for effects of non-tradable goods the Canada-U.S. border effect is reduced to 2.11.

Suggested Citation

  • Liu, Xiaoyun & Whalley, John & Xin, Xian, 2010. "Non-tradable goods and the border effect puzzle," Economic Modelling, Elsevier, vol. 27(5), pages 909-914, September.
  • Handle: RePEc:eee:ecmode:v:27:y:2010:i:5:p:909-914
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    References listed on IDEAS

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    Cited by:

    1. Gani, Azmat & Scrimgeour, Frank, 2016. "New Zealand's trade with Asia and the role of good governance," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 36-53.
    2. Valeriano Martínez-San Román & Marta Bengoa & Blanca Sánchez-Robles, 2016. "Foreign direct investment, trade integration and the home bias: evidence from the European Union," Empirical Economics, Springer, vol. 50(1), pages 197-229, February.
    3. Gani, Azmat & Al Mawali, Nasser Rashid, 2013. "Oman's trade and opportunities of integration with the Asian economies," Economic Modelling, Elsevier, vol. 31(C), pages 766-774.
    4. Valeriano Martínez-San Román & Marta Bengoa-Calvo & Blanca Sánchez-Robles Rute, 2013. "The Trade-FDI Nexus: Evidence from the European Union," Working Papers 2013/15, Economics Department, Universitat Jaume I, Castellón (Spain).
    5. Esposito, Piero, 2017. "Trade creation, trade diversion and imbalances in the EMU," Economic Modelling, Elsevier, vol. 60(C), pages 462-472.
    6. Liu, Xiaoyun & Xin, Xian, 2011. "Transportation uncertainty and international trade," Transport Policy, Elsevier, vol. 18(1), pages 156-162, January.

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    Keywords

    Border effect Non-tradable goods;

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