Do Subnational Trade Agreements Reduce Trade Barriers? Empirical Evidence from Canadian Provinces

Abstract

As Canada faces threats to the global trading system, free trade between provinces within Canada remains elusive. Just as slow progress in multilateral trade negotiations has driven a proliferation of bilateral international trade deals, dissatisfaction with lack of progress federally has compelled Canadian provinces to sign bilateral agreements with other willing provincial partners. However, almost nothing is known about the efficacy of this approach. We use a gravity model to empirically investigate the effect of provincial agreements on interprovincial trade flows in Canada. We find that although most agreements facilitated trade between member provinces, others did not. We also find massive provincial trade barriers have declined by 15 percent over the past two decades in Canada.