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Unpublished Paper
Internal Trade and Aggregate Productivity
LCERPA Research Paper 2012-02 (2012)
  • Trevor Tombe, University of Calgary
  • Jennifer Winter, University of Calgary

The positive link between international trade and productivity is well established. However, research on magnitude and consequences of internal trade barriers, which inhibit the efficient geographic distribution of production within a country, is limited. Unique Canadian data provides an ideal opportunity to measure the magnitude - and impact on productivity - of barriers to internal trade. Using a flexible, micro-founded approach, we measure internal trade barriers between Canadian provinces. We find between-province trade costs average 30%, rising to nearly 50% in poor regions, net of distance effects. We then adapt a new-trade model to estimate the productivity impact of these barriers. Eliminating inter-provincial trade barriers increases productivity by over 15% in the median province and by over 8% for Canada as a whole, accounting for nearly half the productivity gap with the United States. For comparison, we find these benefits are larger than lowering international trade barriers by 20%. Internal trade barriers also account for over 40% of the regional income inequality across provinces.

  • Internal trade,
  • Productivity,
  • Regional economic development
Publication Date
Citation Information
Trevor Tombe and Jennifer Winter. "Internal Trade and Aggregate Productivity" LCERPA Research Paper 2012-02 (2012)
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