Canada's Trade Diversification Hurdles: A Study by the Fraser Institute
The large size and proximity of the US economy to Canada's make it challenging for Canadian exports to diversify to other markets, according to a recent study by the Fraser Institute. The Gravity Model of Trade shows that the volume of trade between two countries is positively related to their economic sizes relative to the world economy.
The US has the largest absolute and relative size in the world, which contributes to Canada's reliance on the US as its main export market. Additionally, the ease of transportation and doing business between the two countries due to their shared border also plays a significant role in this dependence.
To achieve greater geographic trade diversification, substantial investments in Canadian rail and port infrastructure are necessary to reduce transportation costs to non-US markets. Furthermore, trade agreements with non-US partners and ongoing trade promotion initiatives may help lower other hurdles to increased Canadian exports.