In 1988 a Canadian province traded an estimated 22 times more with other provinces than with a US state of the same size and distance; a border acts like an extra freight charge.
The video builds the intuition; sources and limits are set out in the article. English- and Japanese-captioned versions of the vertical film are still on the to-do list.
On a map a border is a thin line; how wide is it in trade? Using 1988 data, McCallum (1995) estimated that a Canadian province traded 22 times more with other provinces than with a US state of the same size and distance, although tariffs between the two countries were already low.
- Thicker for the small country. After Anderson and van Wincoop added what the old method left out, the border was estimated to raise Canada’s domestic trade about sixfold but US domestic trade by only about a quarter. Canada is small, most of its potential partners lie across the border, so the border is wider for it.
- A border that really appeared. After the war the inner-German border was sealed ever more tightly; West German cities near it lost about a quarter of their relative population over nearly forty years compared with other West German cities (Redding and Sturm 2008; another study attributes this mainly to refugee movements, so it remains disputed). After reunification in 1990 checkpoints went quickly, yet trade across the old line stayed lower, and its shadow is estimated to take thirty to forty years or more to fade (Nitsch and Wolf 2013).
- A border that opened. After the Cold War, Austrian towns within 25 km of the eastern border saw faster wage and employment growth (Brülhart, Carrère and Trionfetti 2012).
- Why so wide. A border works like an extra freight charge; tariffs are a small part, with currency exchange, language, rules and networks adding the rest. When this cost is high, each side runs its own plants.
- Japan and China. Japan has no land border, yet trade between eastern and western Japan is 20–50% lower than within each half, while no such wall appears between prefectures (Wrona 2018). One study converts the Hong Kong–mainland border into about 266 km of distance and the Guangdong–Shanghai provincial line into only about 1.3 km (Fan, Wei and Wu 2016).
Statistics Canada estimates the US–Canada border at about a 30% tariff; in a simulation lowering it to 10%, Canadian exports to the US rise by about 80%, interprovincial trade halves, Canadian spending power rises by over 10%, and US spending power by less than 1%. The small side hurts more, and even after a border goes its shadow lasts. The Japanese classroom version also covers how a border can wipe out the gains from comparative advantage and how border effects are estimated.
Japanese classroom version (16:9)
A slower Japanese 16:9 version paced for a lecture, in two parts, with the full derivation, worked numbers and review questions.
Sources: McCallum (1995); Anderson and van Wincoop (2003; NBER WP 8079); Redding and Sturm (2008); Nitsch and Wolf (2013); Brülhart, Carrère and Trionfetti (2012); Wrona (2018); Fan, Wei and Wu (2016); Statistics Canada, Economic Insights No. 096 (2019).