Report urges breaking down internal trade frictions to boost productivity, resilience, and GDP growth
Canada should reform its internal market to unlock an engine for economic expansion, according to a new report.
The International Monetary Fund analysis says that while Canada is globally recognized for its open international trade policies, persistent regulatory and policy barriers within its borders continue to hamper productivity and diminish competitiveness, particularly in services, an area increasingly central to economic performance.
It states that the Canadian economy remains fragmented because provinces and territories maintain differing regulatory regimes covering areas such as licensing, standards, and service rules. These internal obstacles curb the free flow of goods, services, capital, and labour, placing a drag on overall economic performance.
The report delivers a compelling estimate: “fully eliminating non-geographic internal trade barriers could raise Canada’s real GDP by nearly 7 percent over the long run—roughly C$210 billion in today’s terms.” This gain would stem from more efficient labour and capital allocation, heightened competition, and greater scale for high-productivity firms.
Removing internal trade friction is already a focus for the federal government and other stakeholders, with measures such as Bill C‑5, the Free Trade and Labour Mobility in Canada Act which aims to remove red tape.
According to the IMF, services sectors such as finance, telecommunications, transportation, and professional services account for approximately four-fifths of the potential GDP boost, reflecting both their weight in the economy and their interconnections across other industries.
The uneven nature of internal trade costs means that smaller provinces and northern territories bear disproportionately high barriers, particularly in services like healthcare and education, where some measured frictions exceed the equivalent of a 40% tariff.
Enhanced domestic integration could improve investment climates, sharpen competitive dynamics, and strengthen Canada’s buffer against weaker external demand or global supply shocks.
Policy recommendations focus on pragmatic steps to harmonize regulatory frameworks without upending provincial authority. These include default mutual recognition of credentials, transparent benchmarking of trade barriers, and federal incentives tied to cooperative reform.
In the IMF’s view, Canada’s ability to “mobilize its domestic market” is becoming just as critical as its global engagement.
The report concludes: “The opportunity is now. The prize is large. Turning thirteen economies into one is no longer just an aspiration—it is an economic imperative.”
