Canadian business investment ‘significantly’ lower compared to the US, study shows
The gap between Canadian and US business investment per employee has “widened significantly” after 2014, with Canada seeing a $43.7 billion drop in total annual business investment between 2014 and 2021, according to a new report from the Fraser Institute.
“Economists have warned of Canada’s weak business investment, especially compared to the United States. This should be of concern to Canadians, as strong business investment is the key to higher incomes, greater economic prosperity and better living standards,” the report, released June 29, states in its main conclusions.
“Canadian prosperity depends in large part on the strength of corporate investment. Policy makers need to recognize the current challenge, understand its causes and prioritize policies that support business investment in the future.”
U.S. real or non-residential business investment per employee, referring to expenditures on structures such as factories and pipelines, machinery and equipment such as computers, and intellectual property such as software, but excluding housing, exceeded that of Canada each year from 2002 to 2021 Canadian investment grew $2,889 over the period, while U.S. investment grew $11,064.
This means that in 2014 Canada invested about 79 cents per worker for every dollar invested in the United States, but by 2021, investments had dropped to 55 cents for every US dollar.
The three Canadian provinces of Alberta, Saskatchewan and Newfoundland and Labrador had “significantly higher” real business investment per employee than the United States in 2014.
But between 2014 and 2021, growth in real business investment per employee in the US has been higher than any Canadian province except Ontario. Growth actually fell in five provinces: Alberta, Newfoundland and Labrador, Saskatchewan, Manitoba and Nova Scotia.
According to the Fraser Institute, between 2002 and 2021, Canada saw a greater increase in the number of corporate employees compared to the United States, meaning that Canada’s weaker corporate investment partly reflected faster growth in the number of employees.
The report also suggested that the 2014 oil price collapse, an increase in regulatory restrictions and perceived policy uncertainty in Canada related to the energy sector, and the Canadian government’s recent tax and regulatory policies contributed to the decline in corporate investment in the country.
‘Worrying implications‘
The steady decline in Canadian real business investment per employee and the widening gap between Canada and the United States “has worrying implications for Canada’s economic growth, and in particular Canadian workers’ incomes and earnings relative to incomes of employees in the United States. States,” the report said.
A previous Fraser Institute reportfrom July 2021, also found that Canada has recently had weak investment performance compared to other developed countries, especially in machinery, equipment and intellectual property products.
This “predicts a bad future for Canadian private sector productivity growth and underscores the urgency of tax and regulatory reform to strengthen incentives for investment and entrepreneurship in Canadian business,” the 2021 report said.
