Understanding Canada's International Trade under the Trans-Pacific Partnership: Lessons from Gravity Redux

This article applies the traditional gravity model of trade to explore the effects of the Trans-Pacific Partnership (TPP) in the context of Canada and, subsequently, draws on the theoretical gravity framework incorporating trade costs derived by Anderson and van Wincoop (2003). It provides a decomposition of the growth of Canada's trade flow with each of its top trading partners. The growth of Canada's bilateral trade with the prospective TPP member countries can be largely attributed to output growth, whereas a vast majority of trade growth with the non-member countries is associated with a reduction in trade costs. Moreover, the elimination of trade barriers after putting into effect free trade agreements considerably diminishes trade costs and raises bilateral trade.