Foreign Investment in Canada – good or bad?

Foreign Investment in Canada – good or bad?

By Renee Bueckert, February 2010

Some of us fear the unknown. More accurately, most of us fear what we don’t understand or perhaps what we think we do. Of course, this holds true in many aspects of our lives and often, it is the power of knowledge that frees us from our apprehensions. Thus is true when we embark on the topic of foreign investment into Canada, a topic that can conjure up a multiplicity of thoughts and reactions. For some, these words bring hope and optimism for renewed economic vigor, increased productivity and strong levels of employment; for others these words ring of patriotic protectionism, both admirable and yet polarized perspectives of a healthy economy. Just as it was when we discovered the earth was round, not flat – the facts remained regardless of how anyone really felt about it: we couldn’t fall off the planet if we walked too far in any direction.

So then, back to the topic at hand: Is foreign investment a good thing for Canada, or not? Consider the facts. According to a study done for the Institute for Research on Public Policy (IRPP) by Walid Hejazi, a professor and academic director of international programs at the University of Toronto's Rotman School of Management, Canada has nothing to fear from foreign investment. The results of this study remind us that the Canadian economy is heavily dependent on international trade and foreign direct investment and that both of these represent important channels by which Canada links with the global economy. Although the benefits of international trade are relatively well understood, the same cannot be said for foreign investment. The trends in foreign investment in Canada demonstrate clearly that the pace at which Canadian companies are expanding abroad is faster than the rate at which foreign companies are buying into Canada. In addition, Statistics Canada has shown that foreign takeovers have not resulted in a reduction in either the number of head offices in Canada nor in employment levels. Canadian companies have, in fact, done incredibly well in the global economy. Despite Canada's position as a significant host of foreign investment in 1970, we have become an important source economy for foreign investment. That is, Canadian businesses have expanded globally at a much faster rate than foreigners have expanded in Canada. In 1970, for every dollar of investment Canada had invested abroad, there was $4 invested in Canada. Today, Canada has more investment in the global economy than there is foreign investment in Canada.

As it turns out, foreign companies have higher trade intensities than do Canadian firms, and hence, foreign investment in Canada stimulates productivity, capital formation, trade and employment. Contrary to the fears of many Canadians, foreign investment indicates a sign of economic success, not failure.