In stark contrast to ongoing criticism that corporate Canada is being hollowed out by foreign ownership, a new report from the C.D. Howe Institute finds that Canada in fact has too many barriers to foreign investment.

While Canada’s net outflows of foreign direct investment have been strong so far this decade, the report criticizes regulations that have kept inflows relatively low. With tight credit markets making it increasingly difficult for businesses to secure financing, the report suggests that now is the time to open the doors to foreign investment.

Between 2001 and 2007, Canada’s net outflows averaged 3.9% of GDP, up from 3.7% between 1994 and 2001, and consistently above the OECD average. It ranked 13th among 98 major countries in FDI outflows relative to the size of its economy.

Ranked for the sum of both inbound and outbound investment, however, Canada came 25th, and for inbound investment alone, it came 47th.

“This lack-lustre performance is problematic considering the net benefits derived from greater access to global capital and technology markets,” the report says. It argues that the presence of foreign companies boosts human capital and productivity, and leads to higher wages.

“The economic cost to Canada in failing to be more open to world economic capital flows is significant: we lose out on managerial and technological expertise imported here, as well as the income that comes from Canadian businesses succeeding abroad,” the report says.

It points out that business tax reductions and regulatory relaxation efforts by countries such as Luxembourg, Hong Kong, the Netherlands, and the United Kingdom have increased FDI inflows and outflows and resulted in higher economic growth rates.

The institute calls for the government to dismantle barriers to both inbound and outbound foreign direct investment to increase business exposure to global competition.

Specifically, it suggests removing limitations on ownership in transportation, communications and finance, as well as less government ownership of business enterprises.

It also calls for tax laws to treat both domestic and foreign corporations fairly, and suggests lowering or eliminating high withholding taxes on dividend payments to non-residents.

IE