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University of Iowa Professor Investigates Border Effect

by Kyle Harpster

 

Economists have demonstrated that national borders have complex effects on trade between countries—a phenomenon known as the border effect. A recent research project led by Miwa Matsuo, an Assistant Professor in the School of Urban and Regional Planning at the University of Iowa, analyzed the effect of the U.S.-Canada border on trade between the two countries.

According to Matsuo, studies on the trade barrier between the U.S. and Canada were last conducted in the 1990s. Since then, the attacks on September 11th and subsequent changes in security at border crossings have affected U.S.-Canada trade.

“We believe it is important to reexamine the trade barrier between two countries to explore outcomes of the events,” Matsuo said. “Although several policies and capacity expansion projects have tried to remove no-risk freight traffic between two countries, the outcome has not been examined enough to find out the general equilibrium outcomes of these policies.”

The researchers applied a trade model to Commodity Flow Survey data and Canadian trade data to compare cross-border trade to intra-country trade. Using this data, they found that the border effect was actually smaller than previous studies had estimated. They also discovered that although the border effect had decreased between 1993 and 2007, it still had a significant impact on cross-border trade. Approximately 60% of cross-border freight transportation between the U.S. and Canada is funneled into three main crossing points in the Great Lakes region: Windsor, ON and Detroit, MI; Sarnia, ON and Port Huron, MI; and Fort Erie, ON/Buffalo, NY. Freight traffic can be delayed at these points due to congestion, and trucks are often forced to take an indirect route to cross the border at one of these locations.

According to Matsuo, one possible solution to this problem is the FAST (Free and Secure Trade) program. Instituted after 9/11, FAST is a program for commercial carriers that have completed background checks and fulfill certain requirements. It allows expedited processing for certain shipments entering the U.S. from Canada and Mexico. According to U.S. Customs and Border Protection, about 78,000 commercial drivers are enrolled in FAST.

Matsuo said, however, that the program as it currently exists does not precisely fit the reality of many freight operations.

“The FAST program asks certified operators to transport their freight from a certified origin to a certified destination. In reality, the majority of freight traffic transports goods from multiple small origins to multiple small destinations, which makes it unable to utilize the program,” she said.

Matsuo said that due to the lack of available data on customs wait times and freight routing, especially on the U.S. side, the team was not able to make a specific assessment of the bottlenecks that result from the limited number of crossing points. She hopes to use detailed freight traffic data from the Canadian government to take a closer look at the congestion effects at these crossing points in a future study. In the meantime, the researchers said, the information gained in this study could be useful to the Federal Government when considering future infrastructure investments and policies.

You can click here to view the full report on this research, "Freight Bottlenecks and the Border Puzzle."