Fewer U.S.-based multinational companies are investing in Canada since it formed the North American Free Trade Agreement with the United States and Mexico in 1994, according to Professor Walid Hejazi and Professor Emeritus A.E. Safarian of the Joseph L. Rotman School of Management.
“U.S. multinationals no longer need to locate in Canada to access its market,” says Hejazi, who also teaches in the division of management at UTSC. “In the past, foreign multinational enterprises would locate in this country to avoid paying tariffs. Now that there is free trade within North America, these companies can locate near wealthier and more productive environments in America and simply export to Canada.”
Hejazi and Safarian compared the gross domestic product of the U.S. with 52 countries from 1970 to 2002. They also looked at the amount of foreign direct investment in these countries over the same period. The findings showed that Canada only receives 10 per cent of U.S. foreign investment whereas Europe receives more than half. This contrasts sharply to 40 years ago when Canada received the same amount of U.S. foreign investment as Europe.
“The answer to this foreign direct investment dilemma is to improve Canada’s productivity performance and its investment environment,” says Hejazi. “This is a difficult challenge, and one that has received the attention of both policy-makers and academics.”