19, June 2025

Will Economic Corridors increase productivity?

Economic corridors are definitely having a moment. Google searches for “economic corridors” in Canada tripled between December 2024 and January 2025. The press release following the meeting between the Prime Minister and the premiers in March made prominent reference to a “national trade and economic corridor” and the World Economic Forum writes about “Why trade corridors are the path to a more resilient future.” This interest is clearly caused by the US tariffs and is closely related to the desire to reduce interprovincial barriers to trade in Canada and is one broadly agreed upon element of a plan to respond to the tariffs.

While discussion of economic corridors mainly focuses on the faster and cheaper transportation of goods, another benefit much less widely discussed is the potential for economic corridors in Canada to increase productivity. How realistic is this?

Background

Trade routes have been around for thousands of years, including the famous Silk Road across Asia. There are a number of synonyms and near synonyms – trade corridors, infrastructure corridors, industrial corridors, development corridors, and others.

The term “economic corridor” was introduced by the Asian Development Bank in 1998 in the context of its work to help developing countries in Asia improve their standard of living. In Canada, some Provinces have a Minister charged with developing economic corridors. For example, the relevant Alberta Minister is the Minister of Transportation and Economic Corridors.

One major development has stimulated recent interest in economic corridors in Canada – the US tariffs.

Current situation

Well before the current tariff situation there was serious action to try and improve connectivity across Canada. In 2020 the Council of Ministers Responsible for Transportation and Highway Safety launched the Pan-Canadian Competitive Trade Corridor Initiative, with an objective to increase competitiveness by improving transportation across Canada. In 2022 the group issued a report that made twenty-seven recommendations in four areas: 1. Strengthen coordinated transportation planning to manage future demand 2. Promote regulatory alignment 3. Foster innovation and technology adoption and 4. Enable effective sharing of data. It pointed out that in 2019 for transportation infrastructure the U.S. ranked 12th globally and Canada 32nd; for quality of road infrastructure – U.S. 17th, Canada 30th; for liner shipping connectivity – U.S. 8th, Canada 32nd.

Benefits of freer trade.

In many ways the adoption of free trade across Canada has similar benefits to free trade between countries. The Bank of Canada says: While much has changed in the past 70 years, the largest increase in global wealth coincided with a worldwide reduction in trade barriers and a major increase in global trade.

A well-known paper by Trevor Tombe and Ryan Manucha from 2022 points out that volume of trade across provincial and territorial borders is equivalent to nearly 18 percent of Canada’s GDP.  They found that Canada’s economy could increase by between 4.4 and 7.9 percent over the long-term – a significant gain of between $110 and $200 billion per year, equivalent to between $2,900 and $5,100 per capita – if internal trade barriers are eliminated by mutual recognition policies. They also found that between 1.3 and 1.7 percent of Canada’s workforce would migrate across provinces in response to eliminating internal trade costs.

However, in addition to these effects there are other benefits of freer trade arising from economic corridors. The World Bank points out that one of the intermediate benefits of economic corridors is higher productivity, leading to longer term benefits including higher wages,  and more jobs.  They also list dozens of economic corridors around the world, of which the largest by far is China’s Belt and Road initiative (BRI). The “Belt” refers to a modern version of the ancient Silk Road across Asia, while the “Road” refers to the old Marco Polo route – a maritime silk road connecting China, Southeast Asia, Africa, and Europe. According to London-based consultants the Centre for Economics and Business Research, BRI is likely to increase the world GDP by $7.1 trillion per annum by 2040. It is estimated that China has invested more than $1 trillion in this initiative so far, in about 150 countries.

Productivity benefits of economic corridors.

A paper by Rajveer Singh demonstrated four benefits of economic corridors besides lowering transportation costs:

  1. Attracting investments. By providing world-class infrastructure and connectivity, economic corridors attract both domestic and foreign direct investments.
  2. Driving regional development. Improved connectivity creates job opportunities and boosts local economies.
  3. Promoting industrialization. Corridors encourage industrial clustering, where related industries co-locate to share resources, reduce costs, and enhance productivity.
  4. Boosting employment and skills development. infrastructure projects under economic corridors generate employment during construction and operational phases.

Conclusion

The main benefits from investments in infrastructure to improve economic corridors in Canada are to reduce transportation costs for export markets and reduce barriers to interprovincial trade. Benefits from these investments are massive.

However, the benefits may be even higher as the economic corridors can also play a role in attracting investment, drive regional development, promote industrialization, and boost employment and skills development. These will all help to increase productivity.

Peter Josty