Shifting Foreign Direct Investment (FDI) to High-Growth Sectors in Canada

The Role of Investment Climate in FDI Diversification

Published by ICTC, October 2018

Foreign direct investment (FDI) has played a significant role in the Canadian economy. With the fourth highest inward FDI stock (the value of foreign investors’ equity in and net loans to enterprises resident in the hosting economy) among OECD countries, this indicates the significant impact of foreign capital on Canada’s economic growth and labour market. To quantify this, in 2017, Canada’s inward FDI stock was 1.1 trillion USD, comparable to 65.2% of GDP. When it came to the impact of FDI on employment, approximately 1.9 million Canadians were employed by foreign majority-owned companies that year. This figure comprises nearly 12% of all employment in Canada.

However, while FDI is a substantial form of capital and a job creation engine in Canada, it has actually decreased since 2014. Showing a decline of 13 billion USD since 2016, Canada attracted the lowest level of inward FDI in 2017 since the financial crisis of 2008. Although a variety of factors have contributed to this decline, one key influencer is the energy slump. With 20% of inward FDI in Canada attributed to the Mining and oil and gas extraction sector, global shifts like changes in energy prices and productivity can impact Canada immensely.

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Researched and written by Zhenzhen Ye (Senior Economist and Data Analyst, Research & Policy) with generous support from Alexandra Cutean (Director, Research & Policy), Trevor Quan (Senior Research Analyst), and the ICTC Research & Policy team.

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