Toward a North American security perimeter? : Assessing the trade and FDI impacts of liberalizing 9/11 security measures

However, the extent of the cross-border supply chain and trade in intermediary goods between Canada and the US also warrants the study of the impact of post 9/11 Canadian security measures on US export performance. [...] At the second level, consumption of good s is a CES aggregate of the index of goods produced domestically in j (including those produced by foreign-nationality subsidiaries located in j), ECDOMj,s in equation 10, and of the index of those produced in foreign countries and imported, ECFORj,s in equation 11. [...] Because of the constant-returns-to-scale property of the technology, the cost function is linear in output and thus the marginal cost is equal to average cost and is independent of the level of production (equation 27). [...] In other words, we try to answer the following (counterfactual) question: If the US government had imposed in the early 2000s a protectionist measure (in the form of a tariff barrier on Canadian goods and services) leading to a percent reduction in Canada’s export as given in Table 1, what should have been the magnitude of the shock on the US- imposed tariffs? [...] In fact the numbers reported in rows 2, 11, and 20 correspond exactly to the econometric estimate reported in Table 1. In other words, scenario 1, by eliminating the equivalent tariff of the security measures given in Table 3, simulates a liberalisation scenario which eliminates the negative trade effect of the US-imposed 9/11 security measures as gauged in our econometric model.