Leaving aside the Arrow specifically[1] basically the question is how long can Canada keep up, such that this work provides the sorts of benefits that you are expecting?
Every generation of combat aircraft ends up roughly an order of magnitude more expensive than the one before (Augustine's Law: https://en.wikipedia.org/wiki/Augustine%27s_laws#/media/File...). So, let's say that Canada decides it could afford the Arrow, could it afford a domestic 3rd Generation Fighter (something like the F-4)? Could it afford a domestic Fourth Generation Fighter (F-15/F-16)? Could it afford a domestic Fifth Generation Fighter (F-22/F-35)? Since the cancellation of the Arrow, the UK has not made a single purely domestic air superiority fighter, everything has been transnational. They found affording a domestic 3rd Generation fighters too difficult, so would Canada have been able to do better? Maybe Canada could have gotten some benefit from spin-off technologies, briefly, in the 1950's and into the 1960's, but would it be sustaining if the larger and richer UK couldn't afford it? (Or, as someone else put it to me once, if you want spin off technologies, why not fund those directly, rather than laundering them through mass produced weapons systems?)
[1]: Most 1950's fighters that underperformed were because of the engine troubles, and the Iroquois engine never actually flew outside of a few hours on the tail of a B-47, so it's not guaranteed that it would have worked out in practice. The fighters that didn't underperform due to engine troubles did so because of fire control systems, and after the deserved cancellation of the Astra/Sparrow II program the Arrow was supposed to carry the AIM-4 Falcon missile, which we have ample evidence was very very bad. So as a weapon system, I've only limited confidence that the Arrow would have lived up to its hype.
> Every generation of combat aircraft ends up roughly an order of magnitude more expensive than the one before
Do you really think that's a law, though? Consider the incompetencies of Boeing that are being revealed these days with the 737 Max debacle, combined with the tragedy that was Canada's approach to the JSF / F-35 and the amount of money that was pissed away on absolutely nothing in that space.
There's no reason to believe that it's not possible for a smaller, scrappier, yet reliably-subsidized corporation in Canada to produce things for cheaper than in the States by bypassing a lot of the corruption / inefficiency / etc that plagues these companies and these development approaches presently.
Tornado ADV cost 14m Pounds in 1980[1]. Eurofighter Typhoon cost 100m Pounds[2] in 2006. Saab Viggen cost of 2mUSD in 1967. Saab Gripen cost something like 70m in 2006. (All four of those numbers are replacement cost, ignoring R&D overhead.)
Yes, inflation is real, but the costs in the Augustine's Law chart I provided earlier weren't otherwise adjusted for inflation either, and the rest of the costs of living haven't gone up by an order of magnitude over that stretch.
As for the armwaving about how magically the waste/fraud/abuse in the American defense systems can be avoided, US aircraft win competitive bids on the international market against other countries fighters, suggesting that US price/capability rates are at least as good as other countries can offer. As every Canadian airpower enthusiast would know, the Panvia Tornado and the French Mirage were entered into the New Fighter Aircraft competition that resulted in the CF-18. But the American design won, because it was cheaper/better than the alternatives. (Neither the Tornado nor the Mirage made the cut to 3 finalists- the Tornado was too expensive, the Mirage not good enough.) So... where's the waste/fraud/abuse?
Every generation of combat aircraft ends up roughly an order of magnitude more expensive than the one before (Augustine's Law: https://en.wikipedia.org/wiki/Augustine%27s_laws#/media/File...). So, let's say that Canada decides it could afford the Arrow, could it afford a domestic 3rd Generation Fighter (something like the F-4)? Could it afford a domestic Fourth Generation Fighter (F-15/F-16)? Could it afford a domestic Fifth Generation Fighter (F-22/F-35)? Since the cancellation of the Arrow, the UK has not made a single purely domestic air superiority fighter, everything has been transnational. They found affording a domestic 3rd Generation fighters too difficult, so would Canada have been able to do better? Maybe Canada could have gotten some benefit from spin-off technologies, briefly, in the 1950's and into the 1960's, but would it be sustaining if the larger and richer UK couldn't afford it? (Or, as someone else put it to me once, if you want spin off technologies, why not fund those directly, rather than laundering them through mass produced weapons systems?)
[1]: Most 1950's fighters that underperformed were because of the engine troubles, and the Iroquois engine never actually flew outside of a few hours on the tail of a B-47, so it's not guaranteed that it would have worked out in practice. The fighters that didn't underperform due to engine troubles did so because of fire control systems, and after the deserved cancellation of the Astra/Sparrow II program the Arrow was supposed to carry the AIM-4 Falcon missile, which we have ample evidence was very very bad. So as a weapon system, I've only limited confidence that the Arrow would have lived up to its hype.