Why Canada needs more exporters to drive growth
Why does this matter? As a small, open economy, Canada depends on trade for wealth creation. To grow our exports, we need more companies to start selling abroad. That means encouraging non-exporters to begin with markets that have low barriers to entry. As they succeed and leverage economies of scale, they can expand further, penetrating more distant markets and helping Canada grow its international footprint. At the same time, existing exporters can reach new markets with the right financing tools and reinvest profits in continued expansion.
Have Canada’s merchandise exporters managed to consolidate their learned efficiencies, increase productivity and diversify? When it comes to labour productivity, the answer is yes. Between 2005 and 2022, Canadian exporter labour productivity grew by 2.3%—more than double the 1% rate recorded for Canada’s overall business sector.
These gains stem not only from already productive companies choosing to export, but also from those exporters capitalizing on their productivity improvements and diversifying further.
How small exporters are expanding into global markets
About 65% of Canada’s exporting companies are considered small, yet they account for just 17% of total exports. Although this ratio hasn’t changed much over 25 years, there’s been progress. Today, 72% of small exporters sell to only one country—down substantially from 80% in the early 2000s. More small companies now export to three to five countries, and their share of small-segment exports has grown. This shows that smaller goods-exporting companies are increasingly venturing into more markets.
Medium exporters are scaling and diversifying
Medium-sized exporters have also shown real dynamism. These companies now make up roughly 8% of all exporting companies (up from 6% in the early 2000s) and account for 23% of Canada’s total exports (up from 15%). Their growth—in both number and export volume—speaks to their success in reaching new markets and scaling operations.
About 7% of these companies now sell to 20 or more markets (up from 4%), accounting for roughly 17% of medium-segment export volumes (up from 12%). Similarly, 8% export to six to nine countries, and their share of the segment’s exports is 18%, up significantly from 12% in the early 2000s. Clearly, a subsection of medium-sized companies has successfully expanded their global reach and grown sales.
Despite ongoing concerns about Canada’s diversification imperative, exporters have made meaningful progress in selling into new markets. It’s true that the most productive companies are the ones most likely to export. But once established in foreign markets—typically those closest to Canada—companies gain experience, access to capital, ideas and networks. These drive further efficiency gains and open the door to even more markets.
The bottom line: Exporter productivity fuels Canada’s economic cycle
The question of whether exporter productivity benefits from diversification—or vice versa—is a bit of a chicken-and-egg conundrum. But regardless of the direction of causality, the linkages are clear.
This raises the urgency of creating the right conditions for Canadian companies to become more cost efficient, including incentives for investment and innovation. It also requires lowering the costs to selling internationally for Canadian companies. But the more productive Canadian companies become, the more successfully they’ll diversify—setting off a virtuous cycle critical to Canada’s economic prosperity.
This week, a very special thanks to Meena Aier and Jean-François Côté. Additionally, thanks to Statistics Canada for continued collaboration on exporter characteristics and trends data.
As always, at EDC Economics, we value your feedback. If you have ideas for topics that you’d like us to explore, please email us at economics@edc.ca and we’ll do our best to cover them.
