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This is Canada, the second-largest country in the world, located on the North American continent, right above the United States, bordered by three oceans: the Atlantic, the Arctic, and the Pacific on all three sides. Canada and the US share the world's longest border between any two countries, stretching around 8,891 kilometers or 5,525 miles. What is more fascinating about Canada's geography is that 80% of the entire Canadian population lives within just 100 miles of the United States border, and in fact, 50% of all Canadians live just south of this line. This province of Canada—Ontario, accounts for 38% of the Canadian GDP. Most people tend to live in areas where economic activities are available. That is why the largest industries in Canada—real estate, mining, and manufacturing—are mostly located in these provinces. This colored circle shows the percentage change in house prices in Canada by province over the last 10 years. Since the financial crisis, house prices in Canada have doubled. This housing boom is spurred by consumer spending. In 2009, the government's stimulus program to prop up the economy and the central bank's interest rate near 1% encouraged Canadians to pile up debt to buy homes. People are buying because they hope or fear that prices will keep rising. In the past year, rising interest rates have softened housing prices for now, but most renters in Canada still feel that the dream of homeownership may be unattainable. ing to the results of an Ipsos poll, 63% of Canadians who don't own a home have "given up" on ever owning one. ing to a report by the Canada Mortgage and Housing Corporation (CMHC), immigration has been a significant driver of rental demand in recent years. Many newcomers to Canada initially rent homes rather than purchasing, which helps to sustain demand for rental units. Canada is not alone; house prices also look high relative to rents in most developed countries like the US and UK, which appear reasonably priced. What makes the Canadian housing market an outlier is its consumers, whose ability to borrow and spend may be nearing its limit. Canadians spend a bigger share of investment capital on housing than businesses. Business investment, in this case, is a combination of non-residential structures, machinery & equipment, and intellectual property, which together add up to only 9.3% of GDP. On the other hand, strong growth in housing investment pushed Canada's net stock of residential assets up 18.9%, representing 22.0% of national wealth. In Canada, a large segment of people would rather spend money on housing than on a business. Who can blame them? It sounds like a great plan, until you start to wonder where the jobs come from if there is no local investment. In the economy, business investment is crucial to drive economic expansion. Over the long run, business investment, which increases the economy's overall productive capacity through a larger physical capital stock, allows more goods and services to be produced with the same level of labor and other resources. Compared to the US, Canada really invests less in business as a share of GDP. Business investment is made by both domestic and foreign individuals. Canada’s lower level of domestic investment is filled by foreign direct investment, which is mostly done by the US. In fact, Canadian enterprises rarely dazzle the world. A survey of 900 executives found that Canadians are more risk-averse than their cousins south of the border. At a time of strain in Canada’s partnership with America, it no longer seems acceptable that six of the ten biggest companies by revenue on Fortune’s list of the world’s largest are American or Chinese, while the top Canadian firm, Brookfield Asset Management, a finance manager, is ranked only 158th. Some of the unique characteristics or traits of Canada's economy are influenced by the United States. Being a neighbor and having a close economic relationship with the United States, Canada has developed its economic policies and practices in response to the influence of its southern neighbor. For example, American companies have established business operations in Canada primarily to avoid tariffs or taxes, but headquarters and intellectual property often stay south. Many new and exciting startups in Canada are being acquired by foreign companies, especially American ones. This is partly because when small Canadian companies go public by selling shares on the stock market, they lose tax benefits. Therefore, these companies are more vulnerable to being acquired by larger foreign firms. All of this has made the economy less productive and innovative than America’s. To put the difference in perspective, Canadians make around $60,000 per year on average while their American counterparts make around $80,000. In other words, by traveling just a few hours south, incomes increase almost 33% on average. Americans work more hours than Canadians—about 3.5% more. While the average American worker produces $74 of value per hour, the average Canadian worker produces just $57 of value per hour. What enables Americans to work not harder but rather smarter than Canadians? So, what does contribute to the gap? The biggest factor is the notable difference in the amount spent or invested on machines, tools, innovation, and capital per worker—what economists call “capital intensity”. Canadian businesses spent about $13,000 per worker on capital, while their US counterparts spent $20,500. Canada also spent very little on R&D among G7 countries. ing to the World Intellectual Property Organization, the US produces roughly double the number of patents per person than Canada. Productivity growth is directly related to improved standards of living or income per person. Canada's income per person in 2022, adjusted for purchasing-power parity, was $57,800, nearly $17,400 lower than in America. This gap has not been a big problem so far because Canadians at the bottom half of the income scale are better off than Americans in their position, thanks to lower levels of inequality. A measure called the Gini coefficient assesses the gaps in incomes in any given country. The Gini coefficient ranges from 0 to 1, with 0 indicating perfect equality and 1 indicating perfect inequality. Over the last 42 years, the Gini coefficient in Canada has never risen beyond its U.S. counterpart. Inequality in the U.S. has always been higher than in Canada and, in fact, has risen faster for the entirety of those 42 years. In Canada, after increasing sharply during the difficult period in the early-to-mid 1990s, income inequality has remained essentially flat over the last decade and fell after 2010. However, the Canadian economy remains less competitive compared to other developed economies. ing to the IMD World Competitiveness Ranking, Canada ranks 14th out of 63 countries, its worst performance in the annual survey's history, which dates back to 1997. The country is currently being outperformed by aggressive free-market economies such as Singapore (ranked third) and the US (ranked tenth), as well as progressive countries like Denmark, the Netherlands, Norway, and Sweden known for their strong labor protections and high wages. A competitiveness index isn’t exactly a measure of how competitive a country is against other countries; rather, it’s a measure of how productive a country is. While competition is generally seen as a driver of innovation, efficiency, and economic growth. About 10-15 years ago, Canada was really innovative despite facing stiff competition from larger and better-funded rivals. To stay competitive, Canada needs to be more innovative and creative, and it can achieve this goal because it has some of the most skilled and talented people from around the world. The IMD report backs this up, showing that Canada ranks 11th in the world when it comes to talent. But what’s the point if you don’t use your talent for your country? All the talented people are heading south of the border where they can get paid more. The situation is known as brain drain. Traditionally, Canada has had fewer government initiatives to promote researchers or entrepreneurship compared to some other countries. The fact is that Canada's dependence on natural resources for economic growth has discouraged investment in other sectors such as manufacturing, research, and business activities. Canada has been a natural resource economy. Its primary economic activity revolves around mining, lumber, oil, and natural gas. In 2021, natural resources directly or indirectly accounted for 17% of nominal GDP, and they comprised 51% of the value of Canada’s total merchandise exports. However, Canada’s two biggest exports—oil and vehicles —are both declining and may continue to do so. Oil from Alberta’s tar sands is expensive to produce, and the United States, which is by far its biggest foreign customer, is producing more of its own oil than importing. Car making has never fully recovered from the 2008 recession. Production has dropped from a peak of 3 million vehicles in 1999 to 1.4 million in 2020. So, that leaves the growth in the services sector, which is doing well. In recent years, the financial services, real estate, and communications industries have been growing rapidly. Toronto is now a new financial hub in North America and has one of the highest concentrations of financial services company headquarters in the Americas. And Canada's banking system ranks first in the G7 for the 11th year, and it is one of the soundest in the world. Many may doubt that, but Canada came through the global financial crisis better than America did, in part because its banks are prudent, well-regulated, and untroubled by excessive competition. Despite all its economic problems, Canada remains one of the strongest economies in the world. It has a stable democratic government, polite and confident people, a good business environment, and is perceived as one of the least corrupt countries in the world. However, growth has not been as strong as other advanced economies for a long time, and ing to the OECD's predictions, it is unlikely to improve anytime soon.