THE IMPACTS OF 9/11 ON CANADA-U.S. TRADE

Steven Globerman

and

Paul Storer

Western Washington University

College of Business and Economics

CUSLI, Cleveland, April 2008

FOCUS OF PRESENTATIONFOCUS OF PRESENTATION

TO SUMMARIZE AND ASSESS AVAILABLE EVIDENCE BEARING UPON THE IMPACTS OF POST-9/11 BORDERSECURITY DEVELOPMENTS ON BILATERAL TRADE.

120000

140000

160000

180000

200000

220000

240000

260000

280000

96 97 98 99 00 01 02 03 04 05

Figure 1: Aggregate U.S. Imports from Canada (annualized)

Mill

ions

of

U.S

. D

olla

rsCanadian surface

exports to the United States

(annualized U.S. Dollars)

Source:Hart, M.A Trading Nation

The lasttime we

built a wall…

SOURCES OF EVIDENCE

• WAITING TIMES AT BORDER FOR COMMERCIAL CARRIERS

• ESTIMATED COST AND PROFITABILITY IMPACTS OF WAITING

• INDIRECT ESTIMATES OF IMPACTS OF TRADE

Truck Crossings

Surveys

• ECONOMETRIC STUDIES

WAITING TIMES• Average Waiting Time• Variability in Waiting Times

Both average waiting time and the variability of waiting time appear to have increased immediately after 9/11. It is unclear whether the increases have persisted to the present. Work by Gandhi and Glass translates waiting times into significant trade reductions.

ESTIMATED COST AND PROFIT IMPACTS

Higher costs for carriers in the post-9/11 period, although estimates are difficult to compare. Lee, Martin, Ouellet and Vailancourt (2005) estimate a 1% reduction in Quebec exports.

INDIRECT ESTIMATES

Some indirect evidence that post-9/11 security developments adversely affected exports from Canada to the U.S. Canadian exporters are hiring logistics experts.

Magnitude and persistence of the effects are uncertain.

ECONOMETRIC STUDIES

Globerman and Storer:

Use aggregate trade equations. Identify Canadian export and import “shortfalls” in post-9/11 period. Import shortfalls “disappear” by beginning of 2004. Export shortfalls persist through 2nd quarter of 2005.

Globerman and Storer:Base Gravity Model Equation

ln(Exports) = β0

+ β1 ln(Yt-1) + β2 PFXt-j + β3 D911

Estimated Export Shortfalls (per quarter)

Time Period

Percentage Shortfall

Dollar Shortfall

2001 Q3 8.6% $5.2 Billion

2001 Q4 21.4% $10.8 Billion

2002 19.4% $10.3 Billion

2003 25.8% $13.7 Billion

2004 17.5% $10.4 Billion

2005Q1/2 12.2% $11.4 Billion

Port-Level Time Effects: Center

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

2001Q3 2001Q4 2002 2003 2004 2005Q1-2

Detroit

Buffalo/Niagara Falls

Port Huron

Port-Level Time Effects: East

-0.4

-0.3

-0.2

-0.1

0.0

2001Q3 2001Q4 2002 2003 2004 2005Q1-2

Highgate Springs

Champlain/Rouses Point

AlexandriaBay

Port-Level Time Effects: West

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

2001Q3 2001Q4 2002 2003 2004 2005Q1-2

Blaine

Portal

SweetgrassPembina

Burt:Estimates trade equations at levels of

commodities and ports. He concludes that increased border security following 9/11 had a very limited effect on Canadian exports to U.S. (restricted to one border crossing and to one commodity group, at most).

ECONOMETRIC STUDIESECONOMETRIC STUDIES

Possible Sources of Differences:

• Level of disaggregation & use of lagged dependent variable

• Nominal versus real values of trade and GDP variables

• Scale variables (national GDP ?)

• Sample period – probably not

Variable Name 1996Q1 – 2006Q4 1976Q1 – 2006Q4

Without CUSTA Dummy

With CUSTADummy

Log of GDP 1.431(0.105)

1.159(0.028)

0.949(0.043)

Exchange Rate 0.395(0.137)

0.329(0.101)

0.332(0.099)

2001 Q3 -0.129(0.037)

0.021(0.085)

-0.115(0.050)

2001Q4 -0.182(0.036)

-0.063(0.085)

-0.199(0.050)

2002 -0.180(0.023)

-0.046(0.045)

-0.189(0.028)

2003 -0.194(0.025)

-0.046(0.046)

-0.205(0.029)

2004 -0.096(0.030)

0.062(0.044)

-0.119(0.031)

2005 -0.007(0.048)

0.159(0.047)

-0.045(0.040)

2006 -0.012(0.065)

0.163(0.052)

-0.0630.051)

CUSTA Dummy - - -4.95(0.389)

CUSTA*Log(GDP) - - 0.579(0.044)

R-squared 0.983 0.988 0.996

DW 1.05 0.32 0.92

Overall Conclusions

Various studies seem to identify higher costs of bilateral trade, although magnitude and degree of persistence are unclear. Cost impacts appear to be modest.

Econometric evidence is mixed. If there has been any “lasting” impact, it seems to be for Canadian exports to the United States.

Nevertheless, no cause for complacency. Any further increases in costs may have substantial impacts on bilateral trade.