The Report For Canadian Attractiveness For FDI
The aim of this report is to assess Canadian attractiveness as a destination for foreign direct investment. It will adopt the Political Economy Analysis to discuss the benefits, risks and costs from Canadian political, economical and legal systems for FDI. It is stated that Canadian democratic systems prevent government from abusing power; market-oriented economic systems advocate innovation and property rights protection and its legal systems provide safeguards to property rights protection. Therefore, it believes that investing in Canada is a good choice. Since Canada is rich in natural resources and has rich human ...view middle of the document...
2. Political Economy Analysis
Political economy refers to the systems made up of political, economic and legal systems of a country. It stresses that they are influenced by each other and eventually they affect the impact of economic performance (Hill, 2007). By using political economy analysis, the overview of benefits, risks and costs to do business in Canada is got by investors, which can help them to make an advisable decision. The political economy analysis on Canada is summed up in table 1.
2.1. Political System
Canada is a federal parliamentary democratic country (CIA, 2013), in which the government is elected by the people, exercised either directly or through elected representatives (Hill, 2007).
* Benefits: Under this system, a number of safeguards are enshrined in constitutional law, which guarantees the officials to be accountable for their actions (Hill, 2007). World Bank identifies six dimensions of governance and develops empirical estimates for 215 countries (World Bank, 2013). And Canada ranks 90th percentile above almost in all dimensions of governance. Excellent governance establishes a perfect governance infrastructure which provides a favourable climate for FDI. For example, less corruption decreases the costs for foreign investors to do business.
* Risks: In a democratic country like Canada, it is less likely that political risks will rise. Since the constitutional law provides a lot of safeguards (Hill, 2007), thus limiting the governments’ power, there will not be arbitrary decisions such as embargos and sanctions on a foreign corporation. And since democratic regime has been in Canada for a very long time, it has been received by its people very well. So it is less likely for a social unrest to break out.
* Costs: as stated before, Canada scores well in the six dimensions of governance indicators. In the field of control of corruption, it scores 95 percentile in 2013 (World Bank, 2013), which makes it as one of the cleanest governments. This means that a foreign investor needs not to pay off the political powerful to get permission to do business in Canada.
2.2. Economical System
Like United States, Canada has embraced a market-oriented economy (CIA, 2013). It has been a high-tech industrial society with GDP $1.513 trillion, which ranks it 14th in the world (CIA, 2013).
* Benefits: Jensen states that property rights protection is of importance to FDI (2008). In a free market economy like Canada, property rights are usually protected. Figure 2 shows the protects an owner of some intangible property can enjoy.
Figure 2 Protection Years
Source: (PKF, 2013)
What’s more, there are four economic advantages an investor can take. Firstly, Canada is abundant in natural resources, such as extensive land mass and rich mineral (CIA, 2013). Secondly, Canada has been a member of a lot of economic organizations, such as NATA (CIA, 2013)....