Canada’s Productivity Challenge:

Canada’s labor productivity growth has lagged 19 percentage points behind the United States between 2001 and 2021. This policy brief reveals how Canada’s apparent economic strengths—abundant natural resources and privileged U.S. market access—may paradoxically constrain productivity growth. The Canadian economy remains highly specialized: 55 per cent of exports are resource-based, 75 per cent are directed to the U.S., and energy efficiency lags behind other OECD countries due to persistently low energy costs. These dynamics limit opportunities for complex product development, dampen maritime and trade infrastructure investment, and reduce incentives for efficiency-enhancing innovation. To close the productivity gap, Canada should foster production of more complex goods in sectors adjacent to existing strengths, while implementing mixed incentives and scheduled taxation to accelerate adoption of energy-efficient technologies. Improving existing transport infrastructure will be key to expanding international trade, and targeted financial assistance can sustain private investment despite ongoing trade policy uncertainty.

This Policy Brief proposes a different perspective: while abundant natural resources and privileged access to the U.S. market are often seen as key economic strengths for Canada, we examine how these very advantages may also act as constraints on productivity growth. Specifically, we explore how resource abundance and U.S. market access interact with productivity dynamics in the context of international trade—a key element of Canada’s economy, where the trade-to-GDP ratio is approximately 67 per cent (Global Affairs Canada, 2024).

We argue that these forms of abundance have encouraged Canadian firms to specialize in low-complexity products, reducing the scope for innovation. In addition, they may have dampened investment in trade infrastructure and discouraged firms from pursuing more productive opportunities beyond the U.S. market.