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

Canadian surface exports to the United States (annualized U.S. Dollars)

Source: Hart, M. A Trading Nation The last time 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 Export shortfalls persist through 2nd quarter of 2005.

Globerman and Storer: Base Gravity Model Equation ln(Exports) = β 0 + β 1 ln(Y t-1 ) + β 2 PFX t-j + β 3 D911

Estimated Export Shortfalls (per quarter) Time Period Percentage Shortfall Dollar Shortfall 2001 Q38.6%$5.2 Billion 2001 Q421.4%$10.8 Billion %$10.3 Billion %$13.7 Billion %$10.4 Billion 2005Q1/212.2%$11.4 Billion

Port-Level Time Effects: Center

Port-Level Time Effects: East

Port-Level Time Effects: West

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 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 Name1996Q1 – 2006Q41976Q1 – 2006Q4 Without CUSTA Dummy With CUSTA Dummy Log of GDP1.431 (0.105) (0.028) (0.043) Exchange Rate0.395 (0.137) (0.101) (0.099) 2001 Q (0.037) (0.085) (0.050) 2001Q (0.036) (0.085) (0.050) (0.023) (0.045) (0.028) (0.025) (0.046) (0.029) (0.030) (0.044) (0.031) (0.048) (0.047) (0.040) (0.065) (0.052) ) CUSTA Dummy (0.389) CUSTA*Log(GDP) (0.044) R-squared DW

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.