North American economic integration has had a positive impact on Canada’s economic performance and, at the same time, has not significantly reduced the effectiveness of “Made in Canada” economic policies, says a new study released today by BMO Financial Group.

The study, entitled “North American Economic Integration and Its Application to Canadian Banks”, examines the growing economic linkages between Canada and the United States over the past few decades and finds that the results have been overwhelmingly positive for Canada.

The study notes, for example, that the high level of research and development conducted by U.S. industry has had a “spillover” effect in Canada. These R & D spillovers have helped establish “best practices” benchmarks for Canadian firms and have boosted domestic measured growth in total factor productivity. These productivity gains have, in turn, been beneficial in improving Canadian living standards, which between the years 1997-2001, actually exceeded U.S. growth rates.

“Since the U.S. has the highest level of productivity in the world, it follows that North American economic integration has lifted and will continue to boost Canadian productivity growth and consequently Canadian living standards,” said Tim O’Neill, chief economist, BMO Financial Group, in a news release.

The study also notes that the high level of economic integration between Canada and the U.S. over the past few decades has led many to believe that the fiscal and monetary policy levers available to the Canadian Government are being undermined. BMO research has found this not to be the case.

“The economic policy initiatives taken over the past 15 years have demonstrated that the Canadian monetary and fiscal policies have not been forced to walk in lock step with those of the United States,” said O’Neill. “On the contrary, the two countries have repeatedly pursued divergent policies, which have taken their economies in different directions.”

The study notes by example that in the late 1980’s and early 1990’s the Canadian federal government pursued a tighter monetary policy and a looser fiscal policy than the U.S. in response to different economic conditions. In 1997, Canadian policymakers again deviated significantly from their U.S. counterparts by adopting a much looser monetary policy in response to weaker domestic economic conditions.

“The bottom line,” said O’Neill, “is that Canadian monetary and fiscal policies are still effective tools in the conduct of domestic economic policy.”

The study finds that integration between Canada and the U.S. is particularly pronounced in the financial services sector where cross border mergers and acquisitions have accelerated over recent years.

The full report can be found on the BMO website at www.bmo.com/economic.