In this week’s EconMinute, we’re talking about Foreign Direct Investment into Canada.
Foreign direct investment (FDI) is a substantial and lasting investment in a foreign country. The amount of FDI flowing both into (“inbound”) and out of (“outbound”) a country over time can give us insight into the health of an economy.
In Canada’s case, inbound FDI represents investment in Canada by foreign companies or governments, while outbound FDI represents Canadian entities making major investments abroad. This inflow of capital can help businesses to get new projects underway, make important capital investments, and ultimately support business growth.
Though both streams have proven important to the overall health of an economy, inbound FDI plays a more direct role in generating jobs, innovation, and economic growth within Canada. At the same time, a large outflow of investment could suggest that Canada is growing less attractive as an investment destination. As such, we were curious to see how both inbound and outbound FDI have changed over time.
Here’s what we discovered:
- Generally, over the past three decades (1990-2022) both inbound and outbound FDI have increased significantly—with an average annual growth rate of approximately 7% and 10% respectively.
- However, outbound FDI is growing at a faster rate than inbound FDI, a trend that has become particularly evident since 2007. While investment flowing into Canada has increased at a rate of 6.2% per year, money flowing out has increased at a rate of 9.4% since then.
- In total, investment dollars are more likely to be leaving Canada, something that has generally been the case since the 1990s. As of 2022 (the latest available data), the total amount of outbound FDI was valued at $1.98 trillion, while inbound FDI stood at $1.26 trillion.
So, what could be contributing to the widening gap between inbound and outbound FDI? This question is worthy of further research, but there are a couple of hypotheses. One is a global phenomenon: there has been a decline in FDI in primary industries like agriculture, oil & gas, and forestry—the very industries that have historically attracted FDI into Canada—as investment has shifted to other industries. Another is more unique to Canada: many worry Canada’s uncertain policy landscape with high regulatory barriers is keeping investment dollars flowing in the other directions.
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