In this week’s EconMinute, we’re talking about Business Dynamism across Canada.
As highlighted in a recent article published in The Hub, business dynamism plays an important role in supporting productivity and economic growth. Basically, new businesses enter the market to compete for customers and revenue, encouraging businesses that are less productive to either innovate or close shop.
Though there is no single measure of “business dynamism”, two indicators are key: the proportion of businesses entering the market and, likewise, the proportion of businesses closing. In a healthy economy, we should see two things: 1) a steady flow of both openings and closings, as weaker businesses make way for stronger ones and 2) more openings than closings, representing diversification and growth.
One note on our methodology: for business closings, we utilize what’s called “closing businesses” rather than the more official statistic called “exits”. The advantage of this is that the data is more current (through October rather than April) however a caveat is that it will also include businesses closing temporarily (e.g., seasonal businesses).
So how does business dynamism vary by province and how this has shifted more recently?
Here’s what we found:
- As of 2023, the level of dynamism varied considerably across provinces, from the lowest level in Quebec to the highest level in PEI. However, given the relatively large amount of seasonal work in that province, temporary closures and openings may be playing into PEI’s results.
- PEI aside, Alberta has both the highest rate of business openings and closings over the past year.
- Over the last couple years, most provinces have seen an increase in the number of businesses closing while business openings have held steady (or, ticked down).
- This leaves a business opening rate of around 4.70% and a business closing rate of around 4.74% in 2023 Canada-wide.
- However, Alberta stands out as one of the only provinces with a modest increase inbusinesses opening in 2023 compared with 2021 and, likewise, has a slight edge in openings over closing: 5.22% versus 5.16%, respectively.
Especially strong in-migration to Alberta may be playing a role in continued business creation, but whether this will hold in the year ahead is too soon to say. As we’ve previously noted, the impact of interest rates will not be fully felt until the end of 2024, or later. But regardless of the economic cycle, new business creation must continue to be a policy priority for a healthy and vibrant economy of tomorrow.
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