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Foreign direct investment in Canada by ultimate investing country, 2014

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Released: 2017-10-02

A new study shows that more than half of foreign direct investment in Canada ultimately comes from the United States, a slightly higher figure than the traditional measure based on the location of the immediate investor. On the other hand, the stock of direct investment in Canada held by investors in Europe is much lower according to this new measure.

In line with international standards, foreign direct investment (FDI) statistics have traditionally been compiled according to immediate investor country (IIC), which is the last country through which the investment transited before entering the domestic economy. While this measure is appropriate for evaluating the direct investment flows and corresponding funds exchanged between countries, it can obscure the ultimate source of FDI when foreign investors channel their investment through companies in countries that are not the same as those of the ultimate investor.

A supplementary measure is to examine FDI on an ultimate investor basis, where the ultimate investor is identified by proceeding up the ownership chain of the immediate investor until an enterprise is reached that is not controlled by another enterprise. The location of the ultimate investor is referred to as the ultimate investing country (UIC).

Presenting FDI estimates on a UIC basis enables the identification of the countries around the world that ultimately control the stock of inward FDI. These data are useful because they represent the location where multinational enterprises often make decisions and also show which countries ultimately bear the risks associated with FDI. Understanding the difference between the location of the ultimate and immediate investor is also important as it provides an indication of the extent to which foreign companies are channeling their investments before they reach the Canadian economy.

A study was initiated by Statistics Canada to determine the feasibility of producing estimates on the stock of inward FDI by UIC for Canada, as a supplement to the already existing FDI data by IIC. Statistics Canada has developed the methodology necessary to produce these estimates by linking together information from its FDI and Activities of foreign majority-owned affiliates in Canada programs. The results of this initiative are presented in this study, which reviews the concepts and development work together with provisional estimates for reference year 2014.

One of the main conclusions of the study is that the United States, which is the dominant direct investor in Canada on an immediate investor basis, further increases its share of overall investment when the data are presented on an ultimate investor basis. Other countries with notable higher direct investment when measured on an ultimate investor basis include the United Kingdom, Brazil, China and Japan. Measuring FDI on a UIC basis also results in a substantial reallocation of direct investment out of countries such as Luxembourg, the Netherlands and Switzerland.


  Note to readers

Foreign direct investment (FDI) is a component of the international accounts that refers to investment of a resident entity in one country, the direct investor, obtaining a lasting interest in an enterprise resident in another country, the direct investment enterprise. The lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence by the direct investor on the management of the enterprise.

Statistics on activities of foreign majority-owned affiliates in Canada are an extension of statistics on FDI. They provide additional insight on the effects of FDI in the domestic economy in terms of sales, employment and trade and where the ultimate control resides.

The provisional estimates presented in this study provide an example of some of the data that will be included in the first official release of FDI by ultimate investing country, which is planned for 2018.

Products

The article, "Foreign direct investment in Canada by ultimate investing country", part of Latest Developments in the Canadian Economic Accounts (Catalogue number13-605-X), is now available.

Contact information

For more information, or to enquire about the concepts, methods or data quality of this release, contact us (toll-free 1-800-263-1136; 514-283-8300; STATCAN.infostats-infostats.STATCAN@canada.ca) or Media Relations (613-951-4636; STATCAN.mediahotline-ligneinfomedias.STATCAN@canada.ca).

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