Trade Costs and Changes in Canada's Trade Pattern

This paper measures the size and composition of non-tariff trade costs such as transport, wholesale, and network costs incurred in Canada's merchandise trade using Statistics Canada's latest 'trade margins' statistics. It examines how changes in these trade costs have influenced Canada's merchandise trade pattern and the course of economic integration. Our results show that as tariffs have been substantially reduced and largely abolished, costs associated with transport and distribution services now appear much larger than remaining customs duties; therefore, liberalisation in services might be the next key step in promoting greater merchandise trade. Further, reducing transport and other trade-related costs has helped 'reverse' the 'home market effect', expanding Canada's domestic demand and production for exports of differentiated products