US–Canada border effect between 1993 and 2007: smaller, less asymmetrical, and declining

We revisit the US–Canadian border effect on trade from 1993 through 2007. For 1993 data, we find that traditional log-transformed gravity models make the border effect larger, while data construction processes make the border effect smaller . Overall, we find that the border effect in 1993 is 4.1, which is 15–20 % lower than the previous estimates of approximately 5 by Anderson and van Wincoop (Am Econ Rev 93(1):170–192, 2003 ) and Feenstra (Scott J Polit Econ 49(5):491–506, 2002 ). Using the same data construction and specification methodologies, we find that the effect has shrunk to 3.2 by 2007; namely, the border effect in 2007 reduces state-province trade by two-thirds. Thus, between 1993 and 2007, the border effect declined by 22 %. Based on the structural estimator, we also find that the border effect is stronger for Canadian provinces as shown by Anderson and van Wincoop ( 2003 ), but the asymmetry in the border effect between the US and Canada shrank between 1993 and 2007. Copyright Kiel Institute 2015