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Mid-America Transportation Center

Freight Bottlenecks and the Border Puzzle

Final Report
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Researchers

  • Principal Investigator: Miwa Matsuo (miwa-matsuo@uiowa.edu 319-335-0501)
  • Graduate Students
  • Andrew Collings
  • Mayuresh Dilip Bedekar
  • Project Status
    Complete
    Sponsors & Partners
  • University of Iowa
  • About this Project
    Brief Project Description & Background
    Our research consists of two stages, data construction and their analysis. We will construct panel data of trade and examine freight bottlenecks by using economic models. The panel data is useful to infer changes in the trade costs over time. We plan to construct a data of effective time cost measure of inter-state/province trade. By explicitly taking infrastructure and its quality into account we can measure trade network in the U.S. and Canada more accurately. Then, we will identify the observed trade costs including all time, monetary, and other qualitative costs using classic trade models. Specifically, we use gravity model developed by Eaton and Kortum (2002) and Balistreri and Hillberry (2007). Identified trade cost will be decomposed into transportation and border-crossing time cost.
    Research Objective
    Free trade agreements try to achieve seamless border crossings. Between the U.S. and Canada, free trade agreement is signed in 1988 and followed by North America Free Trade Agreement (NAFTA). Although NAFTA is expected to remove protective tariffs and other trade barriers, researchers found that there remains border effect in the cross-state or province trades between the U.S. and Canada even after NAFTA came into force (McCallum, J.T., 1995; Anderson, J.E. and van Wincoorp, E., 2003; Balistreri, E.J. and Hillberry, R.H., 2007). Namely, the crossing the national border significantly reduces amount of trade compared to intra-country trade. The issue is well known as the “border puzzle” among economists. Our research examines what causes the border effect, specifically, the effects of transportation bottlenecks. Trade data tell that sixty percent of cross-border freight transportation between the U.S. and Canada is concentrated at only three crossing points around the Great Lakes: Windsor, ON-Detroit, MI, Sarnia, ON-Port Huron MI, and Fort Erie, ON-Buffalo, NY (Transport Canada, 2003). Traffic concentration at crossing points is associated with congestion. At those points, capacity expansion is proposed improve the situation (Bowen and Slack, 2007). The facts suggest us two possible causes of border effects in state-province trades. One is indirect routing because of the small number of cross-border points for freight traffic. The other is freight delays at crossing points because of the congestion.
    Potential Benefits
    Our research is useful for federal government to consider future infrastructure investment plan to achieve seamless freight transportation between the U.S. and Canada. If the small number of cross-border points is the source of border effects, it is highly recommended to increase the number of points. If the delay at the border is the problem, we strongly recommend expanding capacity of the gates.
    Abstract
    North America Free Trade Agreement (NAFTA) tried to achieve seamless border crossings; however, NAFTA did not specify how trade should be administrated by the government agencies (Haralambides, H.E. and Londono-Kent, M.P., 2004). Researchers found that there remains border effect in the cross-state or province trades between the U.S. and Canada even after NAFTA (McCallum, J.T., 1995; Anderson, J.E. and van Wincoorp, E., 2003; Balistreri, E.J. and Hillberry, R.H., 2007). Namely, the crossing the national border significantly reduces amount of trade compared with intra-country trade. The issue is well known as the “border puzzle” among economists. Our research examines what causes the border effect, specifically, the effects of transportation bottlenecks. Trade data tell that sixty percent of cross-border freight transportation between the U.S. and Canada is concentrated at only three crossing points around the Great Lakes. One is Windsor, ON-Detroit, MI, another is Sarnia, ON-Port Huron MI, and the other is Fort Erie, ON-Buffalo, NY (Transport Canada, 2003). Traffic concentration is associated with congestion, and capacity expansion is proposed at each site (Bowen and Slack, 2007). We first develop panel data of inter-state or province trade since 1992. Then we assess how much the concentration and the congestion explain the empirically observed border effect by decomposing the border crossing cost into 1) indirect routing because of the limited number of crossings and 2) congestion at the crossings using modified gravity model of trade developed by earlier research. In addition, we will develop panel data to examine historical transition of border crossing costs. Our research would be helpful for federal government to plan transportation infrastructure investment to achieve seamless freight transportation between the U.S. and Canada.
    Project Amount
    $ 64,800.35