VANCOUVER, BC-Increased foreign investment and foreign
business activity in Canada leads to lower prices for consumer
goods, greater choice, better quality goods and services, and
higher wages, according to a new paper by economists with
independent research organization The Fraser Institute.
"Restrictions on foreign investment and business activity
are designed to protect certain domestic industries and do
nothing to help Canadian consumers or the overall economy,"
said Jason Clemens, The Fraser Institute's Resident Scholar in
"Canada should be encouraging foreign investment and foreign
business activity, rather than considering additional
The Benefits of Foreign Business Activity in Canada
reviews existing research on foreign business
activity in order to assess the economic impact of restrictions
on activities such as foreign direct investment, foreign
ownership, and foreign competition.
"With the sale of large Canadian companies such as Inco,
Dofasco, the Hudson's Bay Company, Sleeman's Brewing, and Alcan
to foreign investors, a great hue and cry has arisen for
stricter limits on foreign investment," Clemens said.
"But Canada has some of the most restrictive rules among
industrialized countries on foreign business activity. More
rules will further penalize Canadian consumers and harm our
The paper found that Canada has a plethora of regulations
restricting foreign business activity. The most significant is
the Investment Canada Act, administered by Industry Canada.
Under this act, foreign investments are reviewed before they
are approved in order to ensure that such investment will be of
net benefit to Canada. Additionally, there are a number of
industry-specific regulations that limit foreign ownership or
investment in particular business segments such as
telecommunications, airlines, banking, pipelines, mining, oil
and gas, radio and TV broadcasting, and publishing.
The research shows that industry-specific regulations
shelter domestic firms from competition, ultimately resulting
in higher prices for consumers, reduced choice, and slower
access to technology on the part of industry.
Among countries within the Organization for Economic
Cooperation and Development (OECD), Canada ranks 25th out of 29
nations in terms of openness to foreign business, joining other
countries with heavy restrictions such as Iceland and Mexico.
The countries most open to foreign business activity tend to be
European, led by Belgium.
In fact, Clemens noted that several OECD reports have been
quite critical of Canada's restrictive policies on foreign
business activity. A 2006 survey singled out Canada as one of
the most restrictive countries for foreign business activity in
many sectors, and suggested it needed to lift restrictions of
foreign activity in heavily regulated sectors such as airlines,
telecommunications, and broadcasting if it wanted to increase
competition and efficiency.
The study breaks down foreign business activity into three
areas: foreign direct investment (the investment in assets of
domestic companies), foreign ownership (a foreign firm gains a
controlling interest in a domestic company), and foreign
competition (foreign companies are allowed to compete directly
with domestic companies in the Canadian market).
In all instances, the research shows that the foreign
business activity improves the performance of domestic
companies, usually by increasing productivity by creating
competition or facilitating the transfer and use of new
technology. Consumers benefit from additional choice and lower
prices, while workers benefit through higher wages.
"The research is clear; foreign business activity increases
investment, competition, innovation, and access to new
technology. This leads to lower prices for consumers,
additional choice and higher wages for workers," Clemens
"There's no sound, logical reason why Canadians should fear
foreign investment and competition in Canada."
In light of the evidence showing the benefits of foreign
business activity, Clemens called on the federal government to
create a framework that encourages, rather than restricts
foreign business activity, in order to increase Canada's
competitiveness relative to other industrialized countries.
"We need to recognize that the economic benefits of foreign
business activity will play a critical role in shaping future
investment and competition policy in this country."