The Detroit-Ontario Bridge Project

*This was something I wrote for an Economics Blog. Thought I’d just keep this blog alive by sharing it here. Feel free to trash/comment on anything I say.

Trade has always been the trademark of the free world economy. It brings about a more efficient allocation of resources within individual economies based on their respective comparative advantages. It is an excellent means of fostering good long-term diplomatic and harmonious relations between nations. Having said that, it is as important to engage in Trade as it is finding new means of facilitating it in a more efficient and effective manner. The new Detroit-Ontario Bridge venture known as the New International Trade Crossing (NITC) hopes to achieve this goal.

This new bridge will be fully financed by the Canadian government as the Michigan Republican Legislature has blocked proposals for public funding from its side. They feel that the bridge would be “a potential white elephant whose costs will be borne not by bridge users but by taxpayers.” (WSJ) If taxes increase people would not be happy, especially since they’d be paying unnecessarily for another bridge across the same 2 states. Also for the “economically hard-hit Del Ray neighborhood in Detroit, projected as the site of the bridge’s U.S. landing point.” (WSJ) this would be a double whammy, since the people in that neighborhood would have to pay for the bridge as well as contend with the din created by 24/7 incoming and outgoing traffic.

Previously, the Ambassador Bridge, owned by Billionaire Manuel Maroun was the only connecting pathway between Detroit and Windsor. This 4-lane bridge alone “is the busiest commercial crossing in North America, and congestion at peak times is a problem.” (The Economist) Also, lorries that enter Windsor, end up mixing with traffic in Central Windsor and cause congestion problems there as well. Traffic Congestion is an example of a negative externality that could negatively impact trade and investment. This is especially so for the car industry as highlighted in the articles. According to The Economist, “Complex cross-border supply chains mean that some components of a car may cross the border up to seven times”. If there were huge traffic delays every time parts were being transported, this would collectively long time for cars to be made. As such, this could negatively impact the economy in that the countries might lose their comparative advantages in producing cars. Other countries would import less from them, and this would negatively impact GDP and Economic Growth in the long run.

The bridge promises to help ease traffic flow as the NITC intends to have 6 lanes “with special lanes for preapproved traders”. This would help reduce labor costs as well as manufacturing time. As reported by Canadian policy makers in the WSJ article, “Canadian exporters have complained for years the congested border crossing connecting Windsor and Detroit costs the economy the equivalent of nearly US$16 billion a year in delivery delays and increased compliance burdens.” Hence it would be in the interests of both states to come together and make this happen. Also, traffic on the bridge would not be directed into Central Windsor. It would be directed “into motorways on either side of the border.”. This would help ease congestion within Central Windsor as well.

Apart from being a great way to boost GDP and ease traffic flows, the bridge would help create more jobs thus reducing unemployment and boost investor sentiments. According to The Economist it would help create 6800 permanent jobs to help manage the bridge and an additional 6600 new jobs over 4 years to assist in road repair works in Detroit that would be funded by the American Federal Government should the project be given the green light. This causes long run output to rise and as a result the natural rate of employment for both economies. As the result, the long run aggregate supply shifts to the right. Also, observing the ease at which materials and labor inputs are transported across borders, investors gain greater confidence in the efficiency of the economy and the general allocation of resources.

The Bridge project is something that should definitely happen just because it adds to the GDP of both countries, eases traffic congestion, provides employment and boosts long run investor sentiments. $550 million is a small price to pay for an increase in annual GDP to the effect of “US$16 billion” (WSJ).

References

http://online.wsj.com/article/SB10001424052702303822204577468383034028286.html

http://www.economist.com/node/21563756

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