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Canada lags behind as production becomes more globalized

February 17, 2016 Print

Montreal – Global production processes are changing, and Canada has not kept pace with developments in the rest of the world, says a new study published by the Institute for Research on Public Policy.

Production has become increasingly international in recent decades, with more businesses importing in order to export. The result is sophisticated production networks that span international borders called global value chains (GVCs), which are especially prevalent in high-tech industries such as electronics, motor vehicles, other manufacturing and apparel.

In an advance chapter from the forthcoming IRPP volume Redesigning Canadian Trade Policy for New Global Realities, OECD researchers Koen De Backer and Sébastien Miroudot provide new evidence on Canada’s position in GVCs using data for 39 advanced and key emerging market countries.

They find that Canada’s overall GVC participation ranking fell from 24th in 1995 to 35th in 2011. As they explain, “Canada has actually increased its overall GVC participation over the past two decades, but not by as much as other parts of the world — particularly Asia and Eastern Europe.”

It may be tempting to attribute Canada’s disappointing results over this period to the commodities super cycle and the associated shift in its exports away from manufacturing to resources (which relies less on foreign content). However, a key finding of their chapter is that, even if Canada’s industrial structure had not changed over this period, it would still have ranked well below the sample average.

These results highlight ongoing challenges faced by Canada’s manufacturing sector in an increasingly open and competitive global economy. In the auto sector, for example, Canada appears to be losing ground to suppliers in Asia and Europe.

More generally, the authors’ findings underscore the interconnected nature of the global economy, and Canada’s role in it and dependence on it. Nearly one-fifth of all employment in Canada (roughly 3.5 million jobs) is devoted to producing goods and services for foreign consumers.

According to De Backer and Miroudot, “In today’s increasingly intertwined global economy, protectionist policies are ultimately counterproductive. Canadian policy-makers looking to boost jobs and growth at home should focus on strengthening production factors that are less likely to cross borders. High-value-added activities such as R&D, product design and customer services are particularly attractive.”

Policies that focus on maintaining a highly skilled workforce and efficient trade-related infrastructure will help encourage international investment in, and trade with, Canada.

The chapter can be downloaded from the Institute’s website (irpp.org).

Redesigning Canadian Trade Policies for New Global Realities, edited by Stephen Tapp, Ari Van Assche and Robert Wolfe, will be the sixth volume of The Art of the State. Thirty leading academics, government researchers, practitioners and stakeholders, from Canada and abroad, analyze how changes in global commerce, technology, and economic and geopolitical power are affecting Canada and its policy.

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The Institute for Research on Public Policy is an independent, national, bilingual, not-for-profit organization based in Montreal. To receive updates from the IRPP, please subscribe to our e-mail list.

Media Contact:    Shirley Cardenas    tel. 514-594-6877    scardenas@nullirpp.org

New International Evidence on Canada’s Participation in Global Value Chains

New International Evidence on Canada’s Participation in Global Value Chains

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