Overview
A new IMF assessment concludes that Canada could realize close to a 7% increase in real gross domestic product if the country dismantles the web of rules and restrictions that impede commerce across provincial borders. The report estimates those reforms would translate into a long-run boost of roughly C$210 billion to the national economy.
Internal frictions and their magnitude
The IMF team describes Canada's domestic market as fragmented, noting that this fragmentation creates impediments for goods, services and labor moving between provinces. On average, these barriers amount to an estimated 9% tariff equivalent on internal trade. The economists emphasize that this pattern reflects Canada's federal arrangement, saying, "Canada’s internal market has long reflected its federal structure, with provinces exercising constitutional authority over many of the policies that shape commerce."
Barriers are especially acute in service industries. The IMF points out that restrictions in sectors such as healthcare and education can surpass the equivalent of a 40% tariff - levels that would be considered extreme in typical international trade agreements but persist within Canada's domestic regulatory landscape.
Winners, sectors and sources of gains
While the report finds that all provinces would benefit from greater internal integration, it notes that smaller provinces and the northern territories stand to see the largest percentage gains. The IMF estimates that about four-fifths of the projected GDP improvement would come from liberalizing essential service sectors, specifically finance, telecommunications and transport.
The report frames internal liberalization as a national productivity opportunity rather than merely a redistribution, stating, "Internal integration is not a zero-sum reallocation, it is a national productivity dividend" that could help insulate Canada from external trade volatility, particularly developments in the United States.
Implementation challenges
Realizing the potential gains will, the IMF says, require improved modes of cooperative federalism. Practical steps highlighted include mutual recognition of standards and professional credentials so that capital and labor can flow more freely across provincial lines. The report concludes with a clear admonition: "The evidence is clear: internal barriers remain large, economically costly, and increasingly out of step with the needs of a modern, vibrant, service-intensive economy."
Implications for markets and policy
The IMF’s findings point to concentrated economic upside in service sectors and to a political and administrative agenda focused on intergovernmental coordination. Any movement toward harmonization of rules or mutual recognition would mainly affect finance, telecommunications and transport, and would likely alter the competitive landscape for firms operating across provincial borders.
Note: The analysis above reflects the findings and language presented in the IMF report and does not introduce new data or opinions beyond that source.