Canadian Political Economy Analysis and Attractiveness

This report analyzes the political system of Canada and its impact on economic growth and investment. It discusses the benefits, risks, and costs of the Canadian political, economic, and legal systems. The report recommends adjustments to improve foreign direct investment in the Canadian economy.

Running Head: CANADAIAN POLITICAL ECONOMY ANALYSIS AND ATTRACTIVENESS 1
CANADAIAN POLITICAL ECONOMY ANALYSIS AND ATTRACTIVENESS
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CANADAIAN POLITICAL ECONOMY ANALYSIS AND ATTRACTIVENESS 2
1.0 Executive Summary
Globalization has enabled many countries to enter international trade. This is due to the
benefits associated with international trade the major one being availability to diverse market
(Levitt, 2013). The political system of every nation matters a lot in determining the scope of its
trading activities with other nations. The country of choice is Canada. Canada is ranked number
ten among the large and developed economies in the world. It has a mixed economy with the
major dominant sector being the service sector which accounts for more than three quarters of
the nation’s total employment (Norrie & Crime, 2011). Canada has almost all its industries open
to foreign competition and highly skilled labor is readily available. The government of Canada
has undertaken various reforms to improve its foreign direct investment. They include increase in
government expenditure more so the infrastructure sector, reduction of small businesses’ tax and
reduction of tariffs among others. However various costs have been involved such as social
consent involved in pipeline construction for oil companies which should be adjusted
accordingly to prevent foreign investment collapsing. In a nutshell, Canada continues to be a
center of attraction for foreign investors and its political system is anticipated to remain stable in
future.
2.0 Table of Contents
1.0 Executive Summary...............................................................................................................................2
3.0 Introduction...........................................................................................................................................3
4.0 Political Economy Analysis...................................................................................................................3
4.1 Canadian Political System.................................................................................................................5
4.2 Canadian economic system................................................................................................................6
4.3 Canadian legal system.......................................................................................................................7
5.0 Recommendations.................................................................................................................................8
6.0 Conclusion.............................................................................................................................................8
7.0 References.............................................................................................................................................9

CANADAIAN POLITICAL ECONOMY ANALYSIS AND ATTRACTIVENESS 3
3.0 Introduction
Canada is among the richest nations in the world. According to the gross domestic
product which is commonly used to measure a country’s size of economy, Canada is ranked
number ten (Clement, 2014).
Canada is ranked among the top ten nations countrywide with most free economies with
an economic freedom score of more than 77 percent. Almost all the Canadian industries are open
to foreign competition and high skilled labor force is readily availed by the government. Canada
also has a strong rule of law which highly supports an open market economy. For these reasons
Canada has remained the centre of attraction for investors both internally and internationally.
The purpose of this report is to analyze the political system Canada affects its economic
growth and investment both by foreign and national investors.
4.0 Political Economy Analysis
Political economy generally involves studying the production and trade in a given
country and analyzing the relationship with the government, custom and law (Drazen, 2012). It
also analyzes the production and trade relationship with the wealth and national income
distribution and expenditure.
Canada comprises of a mixed-economy which is highly developed and is ranked number
ten according to the gross domestic product worldwide. The country’s economy is majorly
dominated by the service industry which actually accounts for more than three quarters of the
total employment of Canada. The political system in any country plays a vital role in
determining its economic prosperity. The government policies formulated to control its economy
depend much on the political system of the country (Van Loon & Whittington, 2011). The level
of interest rates, taxation system and barriers to trade are majorly controlled by a nation’s
political system. All these factors affect the foreign direct investment in the country. It is
therefore crucial to analyze the economic performance and attractiveness of Canada by a close
look at its political system since it nearly controls everything prevailing in its economy.
The political economy analysis table is shown below:

CANADAIAN POLITICAL ECONOMY ANALYSIS AND ATTRACTIVENESS 4
Political Economy
Analysis
Benefits Risks Costs
Political System  Stable democratic
political system
 Formulates
efficient economic
policies
 Reduction of small
businesses tax
 Increased
production
costs due to
support from
politicians and
citizens to
increase
charges in case
of pollution by
production
companies and
hence
decreasing
foreign direct
investment
 High corporate
taxes
 Social consent
requirement costs
for pipeline
construction
 Increased
charges for
production
activities causing
pollution
Economic System  Free economy
 Adoption of free
open-market
system
 Readily available
skilled labor force
 Decrease in
foreign direct
investment as
costs of
production
increase due to
high minimum
wage rates and
tariffs
 High minimum
wage rates
 Barriers to trade
due to tariffs
Legal System  Right to fair access
to the Canadian
legal system
 Protection of
property rights by
 Costs
associated
with seeking
justice due to
requirement of
 Reduced foreign
direct investment
as pollution
charges increase
rather than

CANADAIAN POLITICAL ECONOMY ANALYSIS AND ATTRACTIVENESS 5
the Canadian legal
system
 Transparency in
the legal system
and elimination of
corruption
public and
private costs
support from the
government to
find efficient
means of
production
4.1 Canadian Political System
Canadian economy has been classified among the stable economies due to its stable
political environment. Its political system is a parliamentary democracy and it has its own
political and social institutions (Drache, 2009).
Benefits
i. Canada has a stable democratic political system. It has a percentile of more than 80 in
terms of political (Caves & Holton, 2009). The government has put in place a strong
security for its citizens and businesses.
ii. The Canadian government formulates efficient economic policies. It has of late
formulated policies to increase its expenditure more so on the improvement of
infrastructure to encourage investment and foster its economic growth.
iii. The Canadian government has also formulated policies to minimize small business taxes
to encourage investment in the economy.
Costs
i. The corporate taxes have of late been increased by the Canadian government which has
highly discouraged investment.
ii. The requirement of construction of pipelines by oil companies to prevent spillages comes
along with requirement of social consent by the government before there construction
which has highly discouraged foreign investment.
iii. The government has increased charges for carbon emissions by manufacturing companies
which has increased the companies’ cost of production hence discouraging foreign direct
investment.

CANADAIAN POLITICAL ECONOMY ANALYSIS AND ATTRACTIVENESS 6
Risks
Foreign direct investment in Canada faces the risks of increased costs of production in
future. This is due to the fact that politicians and citizens of Canada view the increased costs of
production as positive since they help to conserve the environment by reducing global warming
as a result of carbon emissions and improving social conditions. This is likely to adversely lower
the level of investment in Canada.
4.2 Canadian economic system
Benefits
i. The Canadian economy is free with economic freedom of more than 77 percent.
Producers and traders in general are free to exercise control over their labor and property.
The government has limited authority over the trade activities and as a result this lowers
costs associated with government intervention hence encouraging foreign investment
(Rhomberg, 2014).
ii. The Canadian economy involves an open-market system. Almost all its industries are
open to foreign competition. This helps improve the quality of goods and services and
also enables the consumers to enjoy the benefits of competitive prices. As a result foreign
investors are free to enter the economy provided they compete favorably and survive.
iii. The Canadian economy enjoys readily available labor force. This helps investors to
minimize hiring costs and hence can easily enter the market with highly skilled labor
force.
Costs
i. Although labor is readily available, the Canadian government has set high minimum
wages for businesses operating in the economy. As a result, laborers demand for higher
wages depending on their job groups and are reluctant to accept wages lower than the
minimum set target.
ii. The government of Canada puts in place a tariff rate averaging one percent. This means
that, foreign investors have to incur import duties as extra costs for them to enter the
Canadian market.

CANADAIAN POLITICAL ECONOMY ANALYSIS AND ATTRACTIVENESS 7
Risks
The Canadian economy faces the risk of decreasing the foreign direct investment due to
its high minimum wage and tariffs on foreign investment. The government has of late lowered its
tariffs and to for some countries it has even been removed totally.
4.3 Canadian legal system
Benefits
i. Foreign investors have the right to fairly access the Canadian legal system. They can
report any unfair activities encountered in the course of their trading activities and seek
for justice just like the Canadian citizens (Gall, Eliadis & Allard, 2015).
ii. The foreign investors’ property is adequately protected by the Canadian legal system
which meets the world standards.
iii. The Canadian judicial system is transparent and condemns any corruption which may be
aimed at violating the rights of the foreign investors.
Costs
The legal system of Canada involves some costs in seeking justice. These costs include
the public costs such as the court budgets and private costs. All these costs may be actually too
expensive for the party seeking justice and the party may opt to accept the injustice rather than
seek justice.
Risks
The Canadian legal system though democratic, risks lowering foreign direct investments
if not adjusted to limit the costs of seeking justice. The legal system also risks lowering foreign
investment by supporting the government in increasing charges for any environment pollution by
producers.
5.0 Recommendations
Although the Canadian economy is generally doing good there are some adjustments
which need to be considered in order to improve foreign direct investment in the economy. They
include:

CANADAIAN POLITICAL ECONOMY ANALYSIS AND ATTRACTIVENESS 8
i. The Canadian government should work hand in hand with the producers and invest in
research to find efficient means of production rather than increasing charges for
businesses undertaking production which may be polluting the environment.
ii. The government should make the process of seeking justice free for all. This will help
eliminate any injustices faced by foreign investors and residents and hence improve
transparency in trading.
iii. The government should eliminate the charges in form of social consent associated with
pipeline construction for investors venturing in oil production.
iv. The government should continue encouraging free trade and if possible eliminate all trade
barriers to improve its economic efficiency and hence remain competitive.
6.0 Conclusion
The Canadian economy is among the largest economies in the world having been ranked
number ten in terms of gross domestic product. It is generally free with an economic freedom
score of more than 77 percent. It is also open to foreign competition and readily avails highly
skilled labor force. The political system of Canada is stable and is anticipated to remain the same
in future. The government of Canada has lowered tax for small businesses, entered into free trade
agreements with various nations, reduced tariffs to an average of one percent, increased it
expenditure more so on infrastructure and has also eliminated corruption in its legal system. For
these reasons among others, Canada has remained the center of attraction for many investors.
Canada promises a great future and with the current government policies, foreign direct
investment in Canada is anticipated to increase in future.
7.0 References
Caves, R. E., & Holton, R. H. (2009). The Canadian economy: Prospect and retrospect (Vol.
112). Harvard University Press.
Clement, W. (2014). Understanding Canada: building on the new Canadian political economy.
McGill-Queen's Press-MQUP.
Drache, D. (2009). Rediscovering Canadian political economy. Journal of Canadian
Studies, 11(3), 3-18.

CANADAIAN POLITICAL ECONOMY ANALYSIS AND ATTRACTIVENESS 9
Drazen, A. (2012). Political economy in macroeconomics. Princeton University Press.
Gall, G. L., Eliadis, F. P., & Allard, F. (2015). The Canadian legal system (p. 95). Carswell.
Levitt, T. (2013). The globalization of markets. Readings in international business: a decision
approach, 249.
Norrie, K., & Crime, R. (2011). A History of the. London: Butterworths.
Rhomberg, R. R. (2014). A model of the Canadian economy under fixed and fluctuating
exchange rates. Journal of Political Economy, 72(1), 1-31.
Van Loon, R. J., & Whittington, M. S. (2011). The Canadian Political System:
Environment. Structure & Process, 122.