Interprovincial Barriers to Internal Trade in Goods, Services and Flows of Capital: Policy, Knowledge Gaps and Research Issues

This paper summarizes the state of knowledge on internal barriers to trade in goods, services and flows of capital, examines their cost to the economy, and presents some options for addressing the important barriers that remain. A companion paper examines barriers to labour mobility in Canada (Grady and Macmillan, 2007). The paper finds that there is no single overriding research methodology that is most appealing, and suggests employing a methodology most suitable for the use to which the estimates would be put. Researchers could measure the cost of barriers with a case study approach because of its usefulness in focussing attention on specific barriers deserving of attention; update the 1983 and 1995 work of John Whalley, and others; or use computable general equilibrium models to test empirically the gains from increased trade. The study suggests that whether significant progress in dismantling barriers is achieved might well depend on factors such as whether parties abandon or stay with the current Agreement to Internal Trade (AIT) negotiating model. Good progress could also be made with the creation of bilateral and plurilateral agreements such as the Alberta-B.C. Trade, Investment and Labour Mobility Agreement and the recent Interim Agreement on agriculture as it allows like-minded parties to side-step the AIT’s requirement for unanimous consensus. The study also concludes that economic events, such as labour shortages, may well drive the internal trade agenda in the next decade.