Canadian Provinces Rank Poorly in Economic Freedom, Study Shows

People walk by a souvenir store in Old Montreal, May 24, 2021. In North America, Quebec bests only the Atlantic provinces and Mexican states in economic freedom, according to a report by the Fraser Institute. (The Canadian Press/Graham Hughes)

Canadian provinces trail behind U.S. states in economic freedom, a new report says, with some only besting Mexican states in all of North America.

“Higher levels of economic freedom lead to more opportunity, more prosperity, greater economic growth, more investment and more jobs for Canadians,” Fred McMahon, co-author and resident fellow at Fraser Institute, said in a news release.

The report, titled “Economic Freedom of North America 2021” (pdf), looks at the policies of individual jurisdictions in North America—including 10 Canadian provinces, 50 U.S. states, and 32 Mexican states—to see how supportive they were of economic freedom.

The report defines economic freedom as “the ability of individuals to make their own economic decisions about what to buy, where to work, and whether to start a business.” To understand the situation in each individual jurisdiction, the authors measured 10 variables around the three areas of government spending, taxation, and labour market restrictions.

The report produced two indices: a subnational index that examines the provincial, state, and municipal governments within the same country, and an all-government index that compares the economic freedom across the three countries.

Alberta, which ranked top of the list for seven straight years, started to fall behind three years ago, and now ties for the 33rd place with Oregon. The oil-rich province still remains Canada’s highest-ranked province in the report.

“While Alberta saw a change in government in 2019 and has made some progress in changing the course of policy, much remains to be done to once again make the province the most economically-free jurisdiction in North America,” McMahon said.

Seven of the ten Canadian provinces ranked behind all 50 U.S. states. British Columbia is Canada’s second-highest ranked province in the 47th place, followed by Ontario (52nd), Saskatchewan (54th), Manitoba (55th), and Quebec (56th).

The four Atlantic provinces have the lowest levels of economic freedom among all provinces and U.S. states—New Brunswick (57th), Nova Scotia (58th), Newfoundland and Labrador (59th) and Prince Edward Island (60th)—outranking only the Mexican states.

“Governments across the region continue to stifle economic freedom, which hurts economic growth and makes it more difficult for businesses to thrive and create jobs,” McMahon said in a separate news release.

“As economic freedom wanes across Canada, the economic prospects also diminish for Canadians and their families,” he said.

The U.S. state of New Hampshire remains at the top of the list this year, followed by Florida and Idaho. The highest-ranking Mexican state is Baja California, followed by Nayarit and Tlaxcala.

The report notes that the average score in economic freedom in all three countries peaked in 2004, but then began declining until around 2011. Since then, average economic freedom in North America slowly climbed back up, but still remains below the 2004 peak.

The authors note that economic freedom at the subnational level has been associated with a number of indicators that measure per-capita size economy, economic growth, and various business activities.

For example, in 2019, the jurisdictions in the least economically free quartile in the all-government index had an average per-capita income of just US$2,362, compared to US$51,666 for the most economically free quartile. [page 17 of full report]

This holds true for the subnational index, with the least-free quartile having an average per-capita income that is 1 percent below the national average, while the most-free quartile exceeds the national average by 7.5 percent.

Beside McMahon, the Fraser Institute report is also co-authored by Dean Stansel, research associate professor at Southern Methodist University, and José Torra, head of research at Caminos de la Libertad—a member institution of the Economic Freedom Network.

As the report is built on the most recent comparable data from 2019, it doesn’t capture the effects of the COVID-19 pandemic on economic freedom and governments’ pandemic response policies.