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Archived — Working Paper Number 1: Economic Integration in North America: Trends in Foreign Direct Investment and the Top 1000 Firms

Prepared by Industry Canada Micro-Economic Policy Analysis staff, including John Knubley, Marc Legault and Someshwar Rao, January 1994


Summary

To provide an overview of economic integration among the three North American economies. To analyze the structure, performance and characteristics of the top North American firms and to examine the role of the top North American firms in the North American economy.

Method:

A sample of the top 1008 firms (based on total sales) was compiled including 823 American corporations, 158 Canadian-based firms and 27 Mexican companies. The performance of firms was then analyzed.

Main Findings:

  • Increased economic integration among the three NAFTA countries will likely lead to further specialization by firms and countries. Canada is expected to increase its specialization in resources, resource-intensive manufacturing and financial service industries.
  • In Canada, the fastest-growing firms appear to be relatively small and not in the top 1008. They also tend to be in the technology- and knowledge-intensive areas.
  • Canadian manufacturers have taken several measures to improve their productivity and cost performance during the last three years. The preliminary data also suggest that Canadian manufacturing productivity grew at a significantly faster pace than American productivity in 1993. Better productivity performance, lower value of the Canadian dollar, and lower wage growth has resulted in closing some of the Canada-U.S. manufacturing cost gap, possibly by as much as 35 percent.
  • Pressures on Canadian firms to rationalize and restructure their operations further and to become even more cost competitive will persist. The NAFTA can enable Canadian firms to grow and overcome the possible size disadvantages, to reap the benefits of scale and scope economies and to improve their relative productivity performance.
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