Competitiveness Challenges Facing Canadian Industries

The objective of this paper is to evaluate the competitive position of Canadian industries vis-a-vis their American counterparts. Our results suggest that recent good economic news and a strong trade performance mask Canada's competitiveness difficulties. The export surge and a big increase in the trade surplus were largely the result of a strong US economy and a large real depreciation of the Canadian dollar vis-a-vis the US dollar, but were not due to any improvement in underlying competitiveness. As a matter of fact, Canada lost substantial ground to the United States in productivity, the fundamental determinant of the underlying competitiveness. Canada's relatively weak performance in terms of capital accumulation, innovation, highly skilled labour, greater importance of small-sized firms in the economy and a slower shift to New Economy industries all have contributed to its productivity and competitiveness difficulties.