Regionalization and Home Bias: The Case of Canada

Regionalization and Home Bias: The Case of Canada

The bilateral trade flows between Canada and the US have grown rapidly in the 1990s. Are they evidence of an emerging North American trading bloc? A gravity model of trade finds that while economic size and proximity can explain much of the substantial trade between Canada and the US, the US bias in Canada`s merchandise trade has grown since the formation of the Canada-US Free Trade Area. The rise in the US bias reflects an emerging gap between Canada`s home bias relative to the US and its home bias relative to the other major industrial countries.

Ⅰ. Introduction

Ⅱ. The Model and Data

Ⅲ. Estimation and Results

Ⅳ. The FTA and the US Bias

Ⅴ. Conclusions

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