Media Releases

Strong dollar means cross-border shopping heavily influenced by exchange rate

November 29, 2013

TORONTO, ON — With the hol­i­day shop­ping sea­son in full swing it appears Cana­di­ans now more than ever are keep­ing a watch­ful eye on the exchange rate before head­ing south of the bor­der to shop.

Even a one cent increase in the exchange rate caus­es a dis­pro­por­tion­ate num­ber of Cana­di­ans to go cross-bor­der shop­ping, accord­ing to a new study from a team of researchers includ­ing Uni­ver­si­ty of Toron­to Scar­bor­ough and Rot­man School of Man­age­ment pro­fes­sor Ambar­ish Chan­dra.

“When the home cur­ren­cy is strong, as is the case in Cana­da at the moment, even a slight jump in the exchange rate makes a big dif­fer­ence because it expands the set of goods they can buy in Amer­i­ca,” says Chan­dra.

The impact of a slight increase in the exchange rate is greater now than it was 10 years ago because the loonie is near par­i­ty with the Amer­i­can dol­lar, he notes.

“It wasn’t even on the radar for most Cana­di­ans because when the loonie was weak­er, so even a sig­nif­i­cant jump in the exchange rate wouldn’t have made much of a dif­fer­ence,” he says.

Using data col­lect­ed by the Cana­di­an Bor­der Ser­vices Agency from 1972–2010 in sev­en provinces that share a land bor­der with the Unit­ed States, the researchers showed that dis­tance to the bor­der also plays a cru­cial role in cross-bor­der shop­ping habits.

It’s most­ly Cana­di­ans liv­ing close to the bor­der who will cross for sin­gle-day shop­ping trips when the loonie appre­ci­ates, says Chan­da. He notes while the medi­an Cana­di­an lives 81 miles away from the bor­der, the medi­an sin­gle day-trip shop­per lives only 18 miles from the bor­der. It’s also the rea­son Cana­di­ans are also more like­ly to cross-bor­der shop than their Amer­i­can coun­ter­parts because they tend to live clos­er to the bor­der.

The authors also found that cross-bor­der shop­ping trav­el is more than twice as respon­sive as inter­na­tion­al trade to changes in the exchange rate.

“Inter­na­tion­al trade fol­lows con­sis­tent pat­terns estab­lished over a longer peri­od of time, but indi­vid­u­als are far more flex­i­ble,” says Chan­dra. “If an indi­vid­ual con­sumer sees an increase in the exchange rate they can hop in their car and dri­ve south to shop right away.”

The authors also exam­ine sea­son­al pat­terns and the changes in the secu­ri­ty envi­ron­ment at the bor­der fol­low­ing 9–11. Being able to bet­ter iden­ti­fy and under­stand short-term pat­terns of cross-bor­der trav­el is also impor­tant infor­ma­tion for pol­i­cy­mak­ers regard­ing tax­a­tion, infra­struc­ture plan­ning, bor­der secu­ri­ty, and con­trol­ling the spread of infec­tious dis­ease, adds Chan­dra.

The research, which was sup­port­ed by a grant from the Social Sci­ences and Human­i­ties Research Coun­cil, will be pub­lished in the upcom­ing edi­tion of the jour­nal Review of Eco­nom­ics and Sta­tis­tics.

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Don Camp­bell
Media & Rela­tions Offi­cer
Com­mu­ni­ca­tions & Pub­lic Affairs
UNIVERSITY OF TORONTO SCARBOROUGH
Tel: 416–208-2938
Cel 905–424-8894
www.utsc.utoronto.ca