An Empirical Examination of the Effect of COVID-19 Travel Restrictions on Canadians’ Cross-Border Travel and Canadian Retailers

Abstract

The coronavirus disease 2019 (COVID-19) pandemic has been devastating for many Canadian retailers. In this article, we estimate the offsetting positive effects of decreased international travel by Canadians on retail revenues. We use data from 1991 to 2021 on Canadians’ travel to the United States to estimate a model of cross-border travel and establish community-level counterfactual staying rates had the pandemic not occurred. Combined with actual staying rates and elasticities of retailers’ revenues with respect to staying rates, we estimate offsetting revenue gains due to the fall in cross-border travel. Our results suggest that, on average, the border closure generated a 1.49 percent offsetting gain in revenues for small Canadian retailers located within 150 kilometres of the border. We document variation across communities and sub-sectors, with estimates ranging from 0 to 125 percent. Retailers located in less-affluent communities near US shopping opportunities, and those operating in sub-sectors catering to travellers, experienced the largest gains.