Canada Aims to Fix Productivity Gap with Regulatory Reforms

Canada has long grappled with productivity challenges that hinder its economic growth. Recent findings from a study commissioned by the Competition Bureau of Canada suggest that regulatory barriers are a significant factor in this persistent issue. Conducted by international productivity experts, the research highlights that these barriers not only restrict competition but also slow the scaling of businesses across the country.

Data from the Bank of Canada indicates that Canada has lagged behind the United States and other developed nations in productivity since the year 2000. Nicolas Vincent, the Bank’s external deputy governor, underscores that this gap has continued to widen, affecting wage growth and overall economic dynamism. The study estimates that addressing these regulatory constraints could boost Canada’s economy by as much as 10% over the long term.

Identifying the Barriers

The study reveals that regulations in four key sectors—energy, transportation, retail distribution, and professional services—are more restrictive than necessary. These limitations lead to inefficiencies that ripple throughout the economy. By comparing Canada’s regulatory framework to those of 14 OECD countries over a 25-year span, researchers found that Canada was more conducive to competition in the 1990s but has since fallen behind.

As a result, businesses face higher input costs, fewer supplier options, and a slower pace of technological adoption. These factors contribute to the perception that innovation in Canada is both slower and riskier than in other markets, particularly when attempting to expand operations across provincial lines.

The Economic Impact of Reform

By aligning its regulations with international best practices, the study estimates that Canada could see productivity gains of up to 10%. Even incremental reforms that bring Canada closer to U.S. regulatory standards could raise GDP per capita by approximately 5%. The potential increase in living standards could amount to around $7,500 per person over time, emphasizing the substantial economic benefits of reform.

The report highlights that these figures are conservative and do not account for potential gains in sectors such as agriculture and mining or the effects of improving internal trade barriers and labour mobility. The authors advocate for a fresh examination of existing regulations, arguing that many are outdated and do not reflect current market conditions.

Jeanne Pratt, acting commissioner of the Competition Bureau, stated, “This study shows just how much Canada could gain from a pro-competitive regulatory reform across all levels of government.” She emphasized the importance of collaboration to foster a more affordable and productive economy.

The study further illustrates that competition drives innovation. When markets are open, new entrants can introduce innovative approaches, compelling established firms to improve their offerings. This dynamic is crucial for productivity growth.

Addressing Systemic Issues

One of the most significant insights from the research is the classification of competition challenges as systemic rather than sector-specific. The inefficiencies in foundational sectors like transportation and energy have widespread effects on the entire economy.

The Bureau identifies four primary ways regulations can weaken competition:

1. **Entry Barriers**: Complex licensing and permit requirements hinder new businesses from entering markets.
2. **Competitive Constraints**: Pricing and advertising restrictions limit the ability of businesses to offer competitive deals.
3. **Pressure Reduction**: Suggested fee guides and exemptions from competition laws can diminish incentives for firms to innovate.
4. **Customer Friction**: Difficulties in comparing options or switching providers erode competitive dynamics.

These issues are familiar to business leaders, who often encounter regional variations in licensing and restrictive non-compete agreements that limit talent mobility. Although these problems may not appear in financial statements, they significantly affect how quickly ideas and innovations can penetrate the market.

The study does not prescribe specific policy changes but serves to quantify the costs of regulatory stagnation. It highlights the need for executives to recognize how regulatory conditions shape strategic decisions, including expansion plans and pricing models.

As Carolyn Rogers, senior deputy governor of the Bank of Canada, noted in a February 2025 report, “You’ve seen those signs that say, ‘In emergency, break glass.’ Well, it’s time to break the glass.”

Reforming Canada’s regulatory landscape can enhance innovation and competitiveness, ultimately translating to broader economic prosperity. The study adds valuable empirical support to the ongoing debate about how to improve Canada’s productivity and ensure that the economy can adapt to changing global dynamics.