Openness to foreign direct investment and productivity in Canada / : Ouverture aux investissements directs étrangers et productivité au Canada

One of the report’s three recommendations is “Encouraging foreign presence in the services sectors can generate strong positive productivity effects in the economy.”24 Encouraging FDI in the service sector could also have positive spillovers on the manufacturing sector.25 All manufacturing firms should be using basic services such as telecommunications and banking facilities. [...] In fact, studies in France, the Czech Republic, India and Chile confirm that FDI in the service sector increases productivity in the manufacturing sector.26,27,28,29 As a result of spillovers from multinationals to local enterprises, inward FDI has the potential to contribute to productivity growth and, consequently, to domestic economic growth. [...] The reasons given to justify the presence of major restrictions in the service sector often have less to do with economics than with the protection of national security and sovereignty.35 Telecommunications networks and electricity are part of a country’s basic infrastructure. [...] Table 1 shows the change in the Restrictiveness Index in the telecommunications, finance, airline and electricity sectors between 1991 and 2005 for the OECD average and for Canada.36 The Index can range from 0 to 1, with 0 indicating complete openness for inward FDI and 1 for no entry at all. [...] Despite the concerns surrounding foreign investment in the service sector, restrictions on FDI have dropped considerably since the end of the 1990s, following the conclusion of the General Agreement on Trade in Services (GATS).