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by Ron Hirshhorn, October 1997
Through its microeconomics research program, Industry Canada has been at the forefront of efforts to promote an understanding of the nature and effects of foreign direct investment, including both that by foreign firms in Canada and that by Canadian firms in other countries. Foreign investment is the subject of four volumes in the Industry Canada (and the former Investment Canada) Research Series, and of a number of Industry Canada working, discussion, and occasional papers. The purpose of this paper is to consider the policy implications of this body of research.
Since the focus is on policy, the paper skips lightly over those findings which are positive rather than normative. While the first chapter looks briefly at some of the factors underlying recent patterns of foreign investment, it does not purport to summarize the rich conceptual and empirical research in the Industry Canada (IC) papers. Moreover, the policy implications of these studies are clearer in some areas than others. While there is a high degree of consensus among researchers on most of the main issues, some of this paper's conclusions reflect the author's judgment on matters in which the findings of the IC studies are not fully consistent.
The next chapter of the paper discusses Industry Canada research that pertains to the role of foreign direct investment (FDI) and the factors underlying recent investment trends. Chapter 3 considers the policy implications of the Industry Canada research in the context of Canada's role as both a significant host and an important source of foreign investment. In addition to examining the need for government intervention in foreign investment markets, this section considers the implications of the studies' findings for general government policy. Chapter 4 looks at foreign investment policy in an international context. The Industry Canada studies that examine foreign investment barriers and that have something to say about how to improve the international environment for foreign investment are discussed in this section. The paper's conclusions are presented in chapter 5.