Thank you very much for the opportunity to appear before this committee to give my thoughts on the role of offshore financial centres and the role they play in the Canadian economy. This is a very important issue for the global competitiveness and prosperity of Canada, and therefore I believe policy-makers and the public must fully understand this issue in order to make the right policy decisions.
As you indicated, I'm a professor at the Rotman School at the University of Toronto. I've been a professor there since 1995. I've written extensively on Canada's competitiveness and the role of international trade, foreign direct investment, and the role of offshore financial centres.
I published a magazine article in The Banker in November 2012 on the importance of offshore financial centres to the global economy. I believe that article has been circulated to the committee. As my research demonstrates, there is a significant and broad-based benefit to the Canadian economy when Canadian multinationals undertake their international expansion through offshore financial centres. Canadian companies continue to expand globally at a rate faster than foreign companies are coming into Canada. Today Canada has more foreign investment abroad than there is foreign investment in Canada.
The empirical evidence is clear: both inward and outward investments have significant benefits to the Canadian economy. I can talk to both sides of these investments, but let me focus on the outward side.
Just as when foreign companies invest in Canada, when Canadian companies invest abroad, this generates significant economic benefits to the Canadian economy. These benefits include more global activities occurring in head offices of Canadian firms, more exports from Canada, and hence more employment and capital formation in Canada. All of these additional effects augment Canadian jobs and Canadian government tax revenues.
The natural question to ask is the following. When a Canadian company deploys a global strategy and uses a conduit jurisdiction such as Barbados, are these benefits sustained? The answer to this question is yes, and my research supports that. Furthermore, these benefits are not only sustained but enhanced. That is, when a Canadian multinational goes to a foreign market directly, the benefits to Canada are less than when they go to these foreign markets using an offshore financial centre. There's a lot of theory to support this empirical evidence, which I can elaborate upon if requested.
What this all means is that if Canadian multinationals are not allowed to use these jurisdictions to access the global economy, this will hurt their global competitiveness and hence the competitiveness of the Canadian economy. I will go further to argue that a move by the Canadian government to restrict the use of these jurisdictions will not—in capital letters—result in increased Canadian government tax revenue. It would be counterproductive policy that would reduce Canadian competitiveness and Canadian government tax revenue simultaneously.
I understand that this committee is interested in addressing tax abuse, something that every good Canadian and Canadian company applauds, but let's be clear: more tax abuse occurs in onshore locations than in offshore financial centres.
I would also highlight the following. My research has concluded that the use of offshore financial centres has helped Canadian firms expand abroad, but particularly in less familiar and more risky environments, as Mark Carney, the Governor of the Bank of Canada, has argued repeatedly. Canadian companies need to focus more on emerging markets where growth rates are much higher than in developed economies, but so too are the risks. We need to encourage Canadian companies to invest and expand globally and to be global leaders. Restricting the use of these jurisdictions' offshore financial centres will hurt the ability of Canadian companies to compete in those emerging environments.
Therefore, I think it would be wrong to restrict the use of offshore financial centres. That will not help Canada's prosperity. Rather, it will hurt Canada's prosperity.
Thank you.