e-brief

November 27, 2008

Squeaky Hinges: Widening the Door to Canadian Cross-border Investment
R E L E V A N T
By Matt Krzepkowski and Jack Mintz For the period 2001-2007, Canada ranked only 25th among 98 countries in its openness to world markets as measured by cross-border investment flows as a percentage of GDP. For inbound investment flows alone, it ranked 47th. In failing to be more open, Canada loses out on managerial and technological expertise, increased human capital and productivity, and higher wages. Canada should look to dismantle barriers to both inbound and outbound foreign investment to increase business exposure to global competition.

R E A S O N E D I N D E P E N D E N T

While foreign direct investment has been a controversial issue in Canada, the reality is that Canada’s openness to world capital flows, both inbound and outbound, is not impressive by world standards. This lack-lustre performance is problematic considering the net benefits derived from greater access to global capital and technology markets. Emotions on the issue run high. Sharp increases in the number and size of mergers and acquisitions by foreign investors, like those involving Falconbridge, Inco, Alcan and Cognos, have raised fears of Canadian industry being hollowed-out by foreign corporations operating in their own interests and against those of Canadians. These fears, in 2007, led to calls for then-Industry-Minister Jim Prentice to consider blocking more cross-border acquisitions, to which he responded by launching a Competition Policy Review Panel. What are the smart policy responses for Canada? To consider that question, this e-brief examines the broader context of investment flows, which suggests Canada should, in fact, be concerned about low levels of both inbound and outbound investment. While inbound investment into Canada sharply picked up in the first