Why foreign and Canadian direct investment both matter for economic growth

A Canadian manufacturer opens a facility in Mexico to more efficiently service the North American market. At the same time, a European firm invests in a new operation in Quebec, bringing capital, expertise and global market connections. These investments may appear unrelated—one involves Canadian capital flowing abroad, the other brings foreign capital into Canada. In reality, however, they’re part of the same story: How Canada participates in an increasingly interconnected global economy.

Too often, foreign investment is viewed through the simple lens of money flowing in or out of a country. Understood in that way, investment is often reduced to a simple scorecard, where money flowing into Canada is seen as a win, while money flowing out raises concerns about jobs, production and growth. But the reality is more nuanced.

Why investment direction matters less than economic impact

The more important question is how that money is used. Whether Canadian companies invest in expanding abroad or foreign firms invest here at home, the greatest benefits come when those investments help strengthen Canada’s productive capacity, competitiveness and global reach.

When Canadian companies invest abroad, they gain access to new customers, supply chains and expertise that strengthen their operations at home. At the same time, foreign investment in Canada can bring capital, technology and global connections—but its benefits aren’t automatic. The value of investment depends less on its direction than on its ability to create new opportunities, capabilities and commercial relationships that support long-term growth.

How Canadian direct investment abroad supports exports and growth

For many Canadian companies, investing abroad isn’t about moving economic activity out of Canada—it’s about extending their reach beyond it. Establishing affiliates in foreign markets can help firms get closer to customers, navigate local regulations and become part of regional supply chains. In fact, the sales of Canadian foreign affiliates are roughly 70% larger than Canadian export sales and more geographically diversified.  

In turn, those operations often create new opportunities for Canadian exports, from headquarter services and specialized inputs to engineering and management expertise, generating additional jobs, research and development, and government tax revenues. In fact, our internal analysis found that every dollar invested abroad generates about 77 cents in additional Canadian income over five years.

The benefits can also flow back in less visible ways. Exposure to new technologies, business practices and markets can help firms become more productive and competitive at home. In an increasingly interconnected global economy, outward investment is often less about relocation than participation—giving Canadian firms a foothold in the places where growth and opportunity are generated.

What inbound foreign direct investment really brings to Canada

If outward investment helps Canadian firms expand their reach, inbound investment can help strengthen the foundations of the economy at home. When foreign companies establish or expand operations in Canada, they often bring more than capital. They can introduce new technologies, management practices and international networks that help boost productivity and create opportunities for Canadian workers and businesses.

But these benefits aren’t guaranteed. The greatest gains occur when foreign investment builds productive capacity, strengthens innovation and creates lasting links with Canadian businesses, workers and supply chains. In other words, the value of inbound investment lies not simply in who owns an asset, but in whether it leaves Canada with greater capabilities, deeper connections and a more competitive economy.

How CDIA and inbound FDI strengthen global value chains 

Viewed this way, outward and inward investment aren’t competing forces—they’re complementary parts of the same system. Today, few products or services are designed, financed, produced and sold in a single country. A Canadian company may develop a product at home, source inputs from several countries, manufacture components abroad and sell to customers around the world. These interconnected networks—known as global value chains—have become a defining feature of the modern economy. Participation matters because global value chains are where knowledge, technology, investment and commercial opportunities increasingly converge.

Canadian firms invest abroad to gain access to customers, talent and strategic positions within these networks, while foreign firms invest in Canada to tap into Canadian expertise, resources and capabilities. Together, these flows help integrate Canada into the global economy and create opportunities for Canadian businesses and workers to participate in higher-value activities. In today’s economy, prosperity depends less on keeping capital within national borders than on ensuring Canada is connected to the networks where innovation occurs, markets are served and value is created.

Why some investments create more value than others 

Yet investment isn’t inherently beneficial simply because it crosses a border. Some foreign investments create new facilities, jobs and partnerships, while others simply transfer ownership of Canadian assets to foreign interests. Similarly, not every overseas expansion by a Canadian company generates meaningful benefits at home. The greatest gains occur when companies invest with a strategy to build capabilities, create partnerships and deepen their ties with the local workforce and supplier base.

Does the investment bring new technologies, expertise or skills to Canada? Does it help Canadian firms reach new markets and diversify their trading relationships? Does it strengthen supply chains or foster innovation? In a world competing for capital, success is measured not by the volume of investment alone, but by how effectively it translates into long-term economic value. 

The bottom line: Competing through connections and capabilities

Canadian firms investing abroad and foreign firms investing in Canada are part of the same story: How Canada participates and succeeds in the global economy. As capital, ideas and production increasingly move across borders, the question is no longer whether investment ought to flow into or out of Canada. The more important question is whether those investments strengthen Canada’s position in global value chains and build the capabilities, relationships and productivity needed for long-term prosperity.

This week, a very special thanks to Jean-François Côté, senior micro data analyst.

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