1、Trends,Expectations,and PoliciesFalling Long-TermGrowth ProspectsEdited by M.Ayhan Koseand Franziska OhnsorgeAdvance Edition This book presents a sobering analysis of the secular growth slowdown based on the most comprehensive database of potential growth estimates available to date.With nearly all

2、the forces that have driven growth and prosperity in recent decades now weakened,the book argues that a prolonged period of weakness is underway,with serious implications for emerging market and developing economies.The authors call for bold policy actions at both the national and global levels to l

3、ift growth prospects.The book is essential reading for policy makers,economists,and anyone concerned about the future of the global economy.Beatrice Weder di Mauro Professor of International Economics,Geneva Graduate Institute,and President of the Centre for Economic Policy Research(CEPR)A terrific

4、book that couldnt be published at a better time.As economic growth is in the midst of a sustained slowdown across regions,there is an urgent need for understanding the factors behind these developments and for identifying policy solutions.This volume tremendously delivers on both fronts and more as

5、it also introduces a comprehensive global database on potential growth that will facilitate much needed research in this area.Undoubtedly,the books insightful analysis and policy recommendations will be a useful tool for policy makers around the world for years to come.A tour de force that is a must

6、 read!Liliana Rojas-Suarez Director of the Latin America Initiative and Senior Fellow,Center for Global Development(CGD)Economic policy making is becoming increasingly complicated in the 2020s.In addition to tackling traditional tradeoffs in aggregate demand management and improving efficiency on th

7、e supply-side,policy makers need to address new priorities and challenges,from addressing climate change and its impacts to improving income distribution,all in the context of lower growth rates,waning productivity growth,and flattening of the globalization process that has brought unprecedented pro

8、sperity across the globe and lifted more than a billion people out of poverty.In Falling Long-Term Growth Prospects,the authors do a phenomenal job of assessing these trends at the global and regional levels,identifying and unpacking salient 21st century policy challenges,and providing thoughtful an

9、d evidenced-based policy prescriptions for leaders in advanced,emerging market,and developing economies.Importantly,the book underscores that these challenges tend to be global and,hence,global cooperation at all levels is necessary to achieve optimal results.Alas,we seem to be going in the opposite

10、 direction;this book offers a roadmap to put us back on the path to creating a more integrated,prosperous,and equitable global community.Michael G.Plummer Director,SAIS Europe and Eni Professor of International Economics,Johns Hopkins University Advance praise for Falling Long-Term Growth Prospects:

11、Trends,Expectations,and Policies The book is a timely,lucid,and comprehensive compendium of papers analyzing the growth experiences of emerging and developing economies during the last three decades.It especially focuses on the economic slowdown of the last decade and predicts that the slowdown coul

12、d easily continue for at least another decade.The prognosis is thus stark,and urges timely policy actions.Not just policy makers and practitioners,but equally academics and students will find the book to be a compelling resource for better comprehending the dynamics of the ongoing structural slowdow

13、n around the world,specifically in the developing world.This will also enable all the key stakeholders to come up with innovative ways and out-of-the-box solutions to address this worrisome issue.All in all,the book therefore offers compelling reading as well as a roadmap for future policies.Poonam

14、Gupta Director General of the National Council of Applied Economic Research(NCAER),and Member of the Economic Advisory Council to Indias Prime Minister As if the convulsions of COVID,extreme weather events and the Russia-Ukraine war were not enough,developing countries are facing a silent crisis:the

15、ir long-term growth prospects are declining.This carefully researched and compellingly argued book shows that,thanks mainly to demographic and climate change,potential growth will be significantly lower in the future than in the past.The book also identifies policies that can reverse this trend.We m

16、ust adopt these policies now;we owe it to our children.Shanta Devarajan Professor of the Practice of International Development at Edmund A.Walsh School of Foreign Service,Georgetown University Nobel Laureate Robert Lucas once wrote that the consequences of economic growth for human welfare are stagg

17、ering and that once one starts thinking about what drives growth“it is hard to think about anything else.”In the aftermath of the Global Financial Crisis,economic growth in emerging and developing economies started slowing down.This important volume shows that this growth slowdown was not fully driv

18、en by cyclical factors and that,absent a massive effort,in terms of structural policy reform it may persist for the remainder of this decade.Without sustained growth and investment,it will be impossible to reach global development goals in terms of poverty reduction or addressing climate change.The

19、volume provides a unified framework centered on the concept of potential growth and,by identifying the drivers of potential growth,it provides a set of empirically grounded policy suggestions aimed at increasing potential growth.It also develops and describes a novel dataset of measures of potential

20、 growth covering more than 170 countries for a 40-year period.The book and the associated data will be invaluable tools for researchers who are trying to uncover what Lucas called the“mechanics of economic development.”Ugo Panizza Pictet Chair in Finance and Development,Geneva Graduate Institute,and

21、 Vice President of the Centre for Economic Policy Research(CEPR)Advance praise for Falling Long-Term Growth Prospects:Trends,Expectations,and Policies This is timely and important work.It breaks new ground by assembling and analyzing the most comprehensive international database to date on potential

22、 growth and its drivers.It offers valuable advice on policy options to countries as they face the prospect of slowing long-term economic growth and a range of shocks.An essential reading for both policy makers and more broadly for those interested in current global economic trends and challenges.Zia

23、 Qureshi Senior Fellow,Brookings Institution This book is a must read for economists and policy makers alike.It provides a new and unique database for potential output growth covering a large set of countries.The book also offers a thorough analysis of the drivers of potential output growth.It argue

24、s that the recent weakness in growth will continue for the remainder of the present decade and comes up with policy conclusions to reverse this trend.Jakob de Haan Professor of Political Economy,University of Groningen,The Netherlands Advance praise for Falling Long-Term Growth Prospects:Trends,Expe

25、ctations,and Policies v Falling LongFalling LongFalling LongFalling Long-Term Term Term Term Growth ProspectsGrowth ProspectsGrowth ProspectsGrowth Prospects Falling LongFalling LongFalling LongFalling Long-Term Term Term Term Growth ProspectsGrowth ProspectsGrowth ProspectsGrowth Prospects Edited b

26、y Trends,Expectations,and Policies M.Ayhan Kose and Franziska Ohnsorge Advance Edition The text of this advance edition is a work in progress for the forthcoming book Falling Long-Term Growth Prospects:Trends,Expectations,and Policies.A PDF of the final book,once published,will be available at https

27、:/openknowledge.worldbank.org/,and print copies can be ordered at .Please use the final version of the book for citation,reproduction,and adaptation purposes.2023 International Bank for Reconstruction and Development/The World Bank 1818 H Street NW,Washington,DC 20433 Telephone:202-473-1000;Internet

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31、r considered to be a limitation upon or waiver of the privileges and immunities of The World Bank,all of which are specifically reserved.Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license(CC BY 3.0 IGO)http:/creativecommons.org/licenses/by/3.0/igo.Un

32、der the Creative Commons Attribution license,you are free to copy,distribute,transmit,and adapt this work,including for commercial purposes,under the following conditions:AttributionPlease cite the work as follows:Kose,M.Ayhan,and Ohnsorge,Franziska,eds.2023.Falling Long-Term Growth Prospects:Trends

33、,Expectations,and Policies.Washington,DC:World Bank.License:Creative Commons Attribution CC BY 3.0 IGO TranslationsIf you create a translation of this work,please add the following disclaimer along with the attribution:This translation was not created by The World Bank and should not be considered a

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37、rmine whether permission is needed for that re-use and to obtain permission from the copyright owner.Examples of components can include,but are not limited to,tables,figures,or images.All queries on rights and licenses should be addressed to World Bank Publications,The World Bank Group,1818 H Street

38、 NW,Washington,DC 20433,USA;e-mail:pubrightsworldbank.org.Cover image:Getty Images.Used with the permission of Getty Images.Further permission required for reuse.Cover design:Adriana Maximiliano,World Bank Group.ix Summary of Contents Foreword.xix Acknowledgments.xxiii Authors.xxv Abbreviations.xxvi

39、i Overview.o.1 M.Ayhan Kose and Franziska OhnsorgePart I.Potential Growth:An Economys Speed Limit.1 Chapter 1 Potential Not Realized:An International Database of Potential Growth.3 Sinem Kilic Celik,M.Ayhan Kose,Franziska Ohnsorge,and Franz Ulrich Ruch Chapter 2 Regional Dimensions of Potential Grow

40、th:Hopes and Realities .65 Sergiy Kasyanenko,Philip Kenworthy,Sinem Kilic Celik,Franz Ulrich Ruch,Ekaterine Vashakmadze,Collette Wheeler Part II.Investment:Time for a Big Push.151 Chapter 3 The Global Investment Slowdown:Challenges and Policies.153 Kersten Stamm and Dana Vorisek Chapter 4 Regional D

41、imensions of Investment:Moving in the Right Direction?.211 Sergiy Kasyanenko,Philip Kenworthy,Sinem Kilic Celik,Franz Ulrich Ruch,Ekaterine Vashakmadze,Dana Vorisek,and Collette Wheeler Part III.Policies:Recognition,Formulation,and Implementation.287 Chapter 5 Potential Growth Prospects:Risks,Reward

42、s,and Policies .289 Sinem Kilic Celik,M.Ayhan Kose,and Franziska Ohnsorge Chapter 6 Trade as an Engine of Growth:Sputtering but Fixable.327 Franziska Ohnsorge and Lucia Quaglietti Chapter 7 Services-Led Growth:Better Prospects after the Pandemic?.367 Gaurav Nayyar and Elwyn Davies xi Contents Forewo

43、rd.xix Acknowledgments.xxiii Authors.xxv Abbreviations.xxvii Overview.o.1 Slowing growth,dimming prospects.o.1 Magnifying challenges.o.4 One tool to meet multiple policy priorities.o.4 Understanding long-term growth:A framework.o.6 Contributions to the literature.o.6 Key findings and policy messages

44、.o.8 Synopsis.o.20 Future research directions.o.44 Annex A Tables.o.47 References.r.o.1 Part I.Potential Growth:An Economys Speed Limit.1 Chapter 1 Potential Not Realized:An International Database of Potential Growth.3 Introduction.3 Database.7 Evolution of potential growth.12 How do short-term shoc

45、ks affect potential growth?.24 Conclusions.26 Annex 1A Production function approach.31 Annex 1B Univariate filters.35 Annex 1C Multivariate filters.37 Annex 1D Long-term growth expectations.40 Annex 1E Local projection estimation.41 Annex 1F Tables.42 References.r.1.1 Chapter 2 Regional Dimensions o

46、f Potential Growth:Hopes and Realities.65 Introduction.65 Regional potential growth in the rear-view mirror.67 xii Prospects for regional potential growth.70 Regional reform priorities.72 East Asia and Pacific.74 Europe and Central Asia.87 Latin America and the Caribbean.104 Middle East and North Af

47、rica.116 South Asia.127 Sub-Saharan Africa.138 References.r.2.1 Part II.Investment:Time for a Big Push.151 Chapter 3 The Global Investment Slowdown:Challenges and Policies.153 Introduction.153 Trends and fluctuations in investment growth.157 Macroeconomic backdrop.161 Box 3.1 Investment-less credit

48、booms.164 Empirical analysis of investment growth.171 Investment prospects.172 Implications of weak investment growth.175 Box 3.2 Macroeconomic implications of foreign direct investment in EMDEs.176 Policies to promote investment growth.190 Conclusion.196 Annex 3A Determinants of investment growth:e

49、mpirical framework.199 Annex 3B Investment growth and reforms.201 Annex 3C Tables.202 References.r.3.1 Chapter 4 Regional Dimensions of Investment:Moving in the Right Direction?.211 Introduction.211 Investment trends.212 Investment needs.215 Policies to boost investment.218 East Asia and Pacific.220

50、 Europe and Central Asia.230 Latin America and the Caribbean.243 Middle East and North Africa.254 xiii South Asia.264 Sub-Saharan Africa .275 References.r.4.1 Part III.Policies:Recognition,Formulation,and Implementation.287 Chapter 5 Potential Growth Prospects:Risks,Rewards,and Policies.289 Introduc

51、tion.289 Prospects for potential growth.293 Risks to potential growth prospects:downside scenario.301 Policies to lift potential growth:upside scenarios.304 Conclusion.318 Annex 5A Literature review:effects of economic reforms on growth.321 Annex 5B Methodology:institutional reform impact.324 Refere

52、nces.r.5.1 Chapter 6 Trade as an Engine of Growth:Sputtering but Fixable.327 Introduction.327 Trade and growth:a review of the literature.331 Box 6.1 Understanding the determinants of trade costs.332 Recent trade growth and prospects.342 Patterns in trade costs.348 Correlates of trade costs.350 Poli

53、cies to lower trade costs.358 Conclusions.365 References.r.6.1 Chapter 7 Services-Led Growth:Better Prospects after the Pandemic?.367 Introduction.367 How has the services sector shaped economic growth?.370 How has the COVID-19 pandemic affected the services sectors growth?.379 How can digitalizatio

54、n transform opportunities for future services sector growth?.385 What policies can best harness the services sectors growth potential after the pandemic?.390 Conclusion.396 References.r.7.1 xiv Figures o.1 Growth.o.3 o.2 Drivers of output growth.o.5 o.3 Lasting damage to potential growth of recessio

55、ns.o.10 o.4 Potential growth.o.12 o.5 Global trade and investment.o.13 o.6 Policy options.o.15 o.7 Evolution of potential growth.o.24 o.8 Potential growth in EMDE regions.o.26 o.9 Global investment.o.28 o.10 Investment in EMDE regions.o.32 o.11 Prospects for potential growth and policies to lift it.

56、o.36 o.12 Reducing trade costs to boost growth prospects.o.40 o.13 The role of services in the global economy.o.43 1.1 Estimates of potential growth.11 1.2 Comparison of potential growth estimates.13 1.3 Evolution of potential growth.14 1.4 Drivers of potential growth.16 1.5 Potential growth around

57、the global recessions of 2009 and 2020.18 1.6 Drivers of potential growth around the global recessions of 2009 and 2020 .19 1.7 Characteristics of recessions.20 1.8 Effects of recessions on potential growth.22 1.9 Effects of banking crises and epidemics on potential growth.24 1.10 Effects of adverse

58、 events on growth of employment,TFP,and investment.27 1.11 Effects of adverse events on growth of employment,TFP,and investment in advanced economies and EMDEs.28 2.1 Actual and potential growth in EMDEs.66 2.2 Potential growth in EMDE regions,2000-10 and 2011-20.68 2.3 Contributions to potential gr

59、owth in EMDE regions.70 2.4 EAP:Regional actual and potential output growth.75 2.5 EAP:Drivers of potential output growth.78 2.6 EAP:Potential growthbaseline and reform scenarios.82 2.7 ECA:Output growth and potential growth.88 2.8 ECA:Potential output growth and its drivers.91 2.9 ECA:Drivers of po

60、tential output growth.94 xv 2.10 ECA:Potential output growth:scenario results.100 2.11 LAC:Output growth and drivers of potential growth.106 2.12 LAC:Potential output growth.108 2.13 LAC:Potential growth prospects.110 2.14 LAC:Policies to raise potential output growth.112 2.15 MNA:Output growth and

61、drivers of potential growth.117 2.16 MNA:Potential output growth.119 2.17 MNA:Policies to raise potential growth.123 2.18 SAR:Output growth and drivers of potential growth.128 2.19 SAR:Potential output growth.130 2.20 SAR:Policies to raise potential output growth.134 2.21 SSA:Economic growth and dri

62、vers of potential growth.140 2.22 SSA:Obstacles to economic growth and reforms to accelerate potential growth.144 3.1 Investment growth.154 3.2 Private and public investment growth.158 3.3 Investment around global recessions.159 3.4 Median investment around domestic recessions and terms of trade sho

63、cks.160 3.5 Commodity prices,terms of trade,and investment growth.162 3.6 Credit growth,debt,and investment growth.163 B3.1.1 Investment and consumption growth during credit booms and deleveraging episodes.167 B3.1.2 Coincidence between investment surges and credit booms.168 B3.1.3 Output growth dur

64、ing credit booms and deleveraging episodes.169 3.7 Estimated contribution of explanatory variables to predicted investment growth.173 3.8 Investment growth outlook.174 3.9 Investment compared to trend.175 B3.2.1 Trends in FDI since 2000.177 B3.2.2 Correlation of FDI,investment,and growth in EMDEs.17

65、9 B3.2.3 Correlation of FDI,investment,and growth in EMDEs by host country conditions.180 B3.2.4 Summary of empirical studies of FDI and investment in EMDEs.181 B3.2.5 Summary of empirical studies of FDI and growth in EMDEs.183 3.10 Slowdown in growth of investment and trade.186 3.11 Growth of inves

66、tment,productivity,and potential output.187 3.12 Investment needs related to climate goals and the Sustainable Development Goals(SDGs)in EMDEs.189 xvi 3.13 Investment growth around reform spurts and setbacks in EMDEs.193 4.1 Average investment growth,by EMDE region.214 4.2 Regional contributions to

67、EMDE investment and investment growth.215 4.3 Regional investment growth prospects.216 4.4 EAP:Investment growth.222 4.5 EAP:Investment growth slowdown and investment needs.224 4.6 EAP:Infrastructure,environment,health,and education indicators.226 4.7 ECA:Investment growth and needs.231 4.8 ECA:Inve

68、stment prospects.234 4.9 ECA:Financing needs and constraints.238 4.10 LAC:Investment growth.245 4.11 LAC:Correlates of investment growth.247 4.12 LAC:Investment needs.249 4.13 MNA:Investment growth and correlates.255 4.14 MNA:Infrastructure,health,and education indicators.259 4.15 SAR:Investment gro

69、wth and correlates.266 4.16 SAR:Investment needs.269 4.17 SSA:Investment growth slowdown.278 4.18 SSA:Investment needs.282 5.1 Global output growth and relative per capita incomes.291 5.2 Contributions to potential growth.295 5.3 Total factor productivity growth.296 5.4 Demographics.297 5.5 Evolutio

70、n of potential growth.298 5.6 Regional potential output growth.300 5.7 Risks to potential growth prospects.302 5.8 Policies to strengthen drivers of potential growth.305 5.9 Effect of policies on potential output growth.308 5.10 Effects of climate-related investment on potential growth.309 5.11 Inst

71、itutional reforms.317 6.1 Global trade.328 6.2 Factors lowering the elasticity of global trade with respect to global output.343 6.3 Trade during global recessions.345 6.4 Supply chain bottlenecks and trade integration.347 6.5 International trade costs relative to domestic trade costs.351 xvii 6.6 I

72、nternational trade policy,border processes,and logistics.353 6.7 International trade costs in EMDEs,by country characteristics.355 6.8 Services trade restriction policies.357 6.9 Regional trade agreements.360 6.10 Impact of policy improvements on trade costs.363 6.11 Estimated contributions to trade

73、 costs.365 7.1 The services sector and structural transformation.372 7.2 The heterogeneity of the services sector.374 7.3 Employment,value added,and productivity in service subsectors.376 7.4 Outward foreign direct investment in the services sector from the United States.378 7.5 Services and manufac

74、turing activity through recessions.379 7.6 The impact of COVID-19 across sectors.381 7.7 COVID-19 and the performance of services sub-sectors.383 7.8 Adoption of digital technologies in EMDEs.384 7.9 Digitalization and services exports.386 7.10 ICT and intangible capital.388 7.11 Digitalization and

75、innovation in the services sector.389 7.12 Diffusion of ICT among services firms.391 7.13 Digital technology enablers.393 Tables A.1 Actual GDP growth(percent).o.47 A.2 Per capita growth(percent).o.47 A.3 Potential GDP growth(percent).o.47 1F.1 Methodology,time,and country coverage.42 1F.2 Methods t

76、o estimate potential growth.43 1F.3 Variable list.44 1F.4 Sample coverage for production function-based estimates of potential growth.45 1F.5 Regression results for total factor productivity.46 1F.6 Regression results for total factor productivity.47 1F.7 Regression results for labor force participa

77、tion rates,baseline.48 1F.8 Regression results for labor force participation rates,robustness test:10-year moving average.50 1F.9 Regression results of labor force participation rates,robustness check:linear-quadratic trend.52 1F.10 Coverage for univariate and multivariate filter-based estimates.54

78、xviii 1F.11 Coverage for production function approach,filter-based,and expectations-based estimates:advanced economies.55 1F.12 Coverage for production function approach,filter-based,and expectations-based estimates:EMDEs.56 1F.13 List of banking crises.57 1F.14 List of countries affected by epidemi

79、cs.57 1F.15 Impulse responses of potential growth to recessions.58 1F.16 Impulse responses of potential growth to recessions(other measures).59 1F.17 Impulse responses of potential growth to banking crises and epidemics.60 1F.18 Responses of potential growth to banking crises and epidemics(other mea

80、sures).61 1F.19 Channels:Impulse responses of TFP,investment,employment and actual growth rates to recessions.62 1F.20 Channels:Impulse responses of TFP,investment,employment and actual growth rates to banking crises and epidemics .63 3C.1 Economies in the investment sample.202 3C.2 Correlates of in

81、vestment growth.203 3C.3 Correlates of investment growth robustness.204 3C.4 Investment growth around investment climate reform spurts and setbacks.205 3C.5 Estimates of climate-related investment needs.206 5.1 Sample and region coverage.320 B6.1.1 Panel regression results.336 B6.1.2 Panel regressio

82、n results for subsamples.338 6.1 Data employed in the panel regression .366 xix Foreword The overlapping crises of the past few years have ended a span of nearly three decades of sustained economic growth that brought the world a massive reduction in extreme poverty.Starting in 1990,productivity sur

83、ged,incomes rose,and inflation fell.Within a generation,about one out of four developing economies leaped to high-income status.Today nearly all the economic forces that drove economic progress are in retreat.In the decade before COVID-19,a global slowdown in productivitywhich is essential for incom

84、e growth and higher wageswas already adding to concerns about long-term economic prospects.In this decade,total factor productivity is expected to grow at its slowest clip since 2000.Investment growth is weakening:the 2022-24 average will be half that of the previous two decades.The global labor for

85、ce is also growing sluggishly as populations age in advanced economies and many emerging-market and developing economies(EMDEs).In addition,reversals in human capital triggered by the health shock,school closures and learning losses will have long-lasting effects on the growth of potential output.In

86、ternational tradewhich from the 1990s through 2011 grew twice as fast as GDP growthis now barely matching it.The result could be a lost decade in the makingnot just for some countries or regions as has occurred in the pastbut for the whole world.Without a big and broad policy push to rejuvenate it,t

87、he global average potential GDP growth ratethe theoretical growth rate an economy can sustain over the medium term based on investment and productivity rates without risking excess inflationis expected to fall to a three-decade low of 2.2 percent a year between now and 2030,down from 2.6 percent in

88、2011-21.Thats a steep drop of nearly a third from the 3.5 percent rate that prevailed in the first decade of this century.The decline in potential GDP growth will also be sharp for developing economies,largely because of low investment rates:from an annual average of 6 percent between 2000 and 2010

89、to an average of 5 percent in 2011-21 and 4 percent over the remainder of this decade.This broad-based slowdown in the growth rate of potential GDP has profound implications for the worlds ability to tackle the growing array of challenges unique to our times.An economys potential GDP growth rate set

90、s boundaries on key policies affecting developmentincluding the level of benchmark interest rates,the range of possible government spending,and the expected size of returns to investors.The potential growth rate can be raised through policies that grow the labor supply,increase productivity,and ince

91、ntivize investment.Our analysis shows that,if all countries make a strong push,potential global GDP growth can be boosted by 0.7 percentage pointto an annual average rate of 2.9 percent.That would convert an expected slowdown in potential GDP growth into an acceleration.This book lays out an extensi

92、ve menu of policies to boost growth and highlights six priority interventions:Increasing investment:A major global push for greater investment to achieve development and climate goals,without undermining fiscal sustainability,could xx boost potential growth rates by as much as 0.3 percentage point p

93、er year.Business-enabling reforms can be carried out to address a range of impediments to private sector development,such as high business startup costs,weak property rights and corporate governance,inefficient labor-and product-market policies,and shallow financial sectors.Investments aligned with

94、climate goalssuch as in transportation and energy,climate-smart agriculture and manufacturing,and land and water systemscan increase long-term growth and economic resilience to natural disasters.Aligning monetary and fiscal frameworks:Robust macroeconomic policy frameworks are critical to support in

95、vestor confidence and can moderate the ups and downs of business cycles.They help countries attract investment by instilling investor confidence in national institutions,policy making,and currencies.Such frameworks are most effective when monetary and fiscal policies are aligned in their purpose.The

96、y should prioritize inflation,debt,fiscal prudence,and financial-sector stability.Cutting trade costs:Trade costsmostly those associated with shipping,logistics,and regulationscan double the cost of internationally traded goods.Countries with the highest shipping and logistics costs could cut their

97、trade costs in half by adopting the trade-facilitation practices of countries with the lowest shipping and logistics costs.Moreover,trade costs can be reduced in climate-friendly waysby removing the current bias toward carbon-intensive goods inherent in many countries tariff schedules and by elimina

98、ting restrictions on access to environmentally friendly goods and services.Capitalizing on services:As international trade in goods has ebbed,the services sector has become an increasingly important engine of growth for developing economies.Exports of digitally delivered professional services relate

99、d to information and communications technology climbed to more than 50 percent of total service exports in 2021,up from 40 percent in 2019.Developing economies enjoy significant room to grow in this area because of their limited use of such technology in everyday interactions.This requires a renewed

100、 focus on education and skills,particularly language and digital skills.Upping labor-force participation.If overall labor-force participation rates,especially among women and older workers,could be boosted to match the best ten-year increase on record,this could increase global potential growth rate

101、s by 0.2 percentage point on average by 2030.Globally,average female labor force participation remains three-quarters that of men,and the gap is even larger in EMDEs.In some regions,such as South Asia and the Middle East and North Africa,an increase in female labor-force participation rates to match

102、 the EMDE average could boost their potential GDP growth by as much as 1.2 percentage points a year by 2030.Increasing the average participation rate of workers aged 55 years or olderwhich is about half that of 30-to-45-year-old workersis similarly valuable,but will require further investments in wo

103、rk ability,retraining and new skills.Strengthening global cooperation:From 1990 through the mid-2010s,the global economy fired on nearly all cylinders partly because of broad-based international xxi cooperation following the breakup of the Soviet Union.That cooperation has since faltered.Effective n

104、ew methods of cooperationon trade,climate,finance,debt transparency,fragility,health and infrastructure,to name a fewwill be essential if the world is to mobilize the investment that will be needed to achieve sustainable growth and poverty alleviation.An extraordinary series of setbacks has brought

105、the world to another crossroads.It will take an exceptional mix of focused policies and effective international cooperation to revive growth.The World Bank Group is fully engaged in helping countries design and implement policies and projects that boost growth and median incomes while fostering envi

106、ronmental sustainability and resilience.David Malpass President The World Bank Group xxiii Acknowledgments As Robert Lucas once wrote:“Once one starts to think about economic growth,it is hard to think about anything else.”We are extremely fortunate to have worked with many outstanding colleagues wh

107、o helped us to think through complex growth challenges confronting the global economy,put together a brand-new dataset of potential growth,and formulate policy responses to deliver better growth outcomes.It would not have been possible to finalize a study of this magnitude without such a dedicated g

108、roup of collaborators.We are deeply grateful for their insightful contributions.The seven chapters of this book were produced by our tireless co-authors:Elwyn Davies,Sergiy Kasyanenko,Philip Kenworthy,Sinem Kilic Celik,Gaurav Nayyar,Lucia Quaglietti,Franz Ulrich Ruch,Kersten Stamm,Ekaterine Vashakma

109、dze,Dana Vorisek,and Collette Wheeler.We are also thankful to Hayley Pallan,Cordula Rastogi,and Shu Yu for their contributions to annexes,boxes,and background literature reviews.We would like to thank Indermit Gill for his support of our work program on economic growth.We owe a debt of gratitude to

110、colleagues who reviewed the preliminary drafts,provided detailed comments,discussed our findings,and patiently answered our many questions:Amat Adarov,Carlos Arteta,Dilek Aykut,Martin Bailey,Eduardo Borensztein,Natalie Chen,Ajai Chopra,Ibrahim Chowdhury,Kevin Chua,Kevin Clinton,Brahima Coulibaly,Kev

111、in Cruz,Antonio Fatas,Erik Feyen,Poonam Gupta,Jakob de Haan,Graham Hacche,Thomas Helbling,Elena Ianchovichina,Ergys Islamaj,Bradley Jensen,Gerard Kambou,Jean Pierre Lacombe,Yusha Li,Dorsati Madani,Aaditya Mattoo,Valerie Mercer Blackman,Dennis Novy,Joseph Mawejje,Ugo Panizza,Zia Qureshi,David Robinso

112、n,Apurva Sanghi,Sudhir Shetty,Naotaka Sugawara,Jonathan Temple,Christopher Towe,and Garima Vasishtha.We also would like to thank the participants of many internal seminars and of the World Bank Group-wide review process of Global Economics Prospects reports for useful suggestions on the preliminary

113、chapters,and numerous policy makers and researchers for conversations on topics covered here.We are deeply grateful to Kaltrina Temaj for shouldering the lions share of research assistance responsibilities.We are also thankful to Lule Bahtiri,Mattia Coppo,Hrisyana Stefanova Doytchinova,Jiayue Fan,Ar

114、ika Kayastha,Maria Hazel Macadangdang,Rafaela Martinho Henriques,Muneeb Ahmad Naseem,Mohamad Nassar,Vasiliki Papagianni,Lorez Qehaja,Julia Roseman Norfleet,Juan Felipe Serrano Ariza,Shijie Shi,Yujia Yao,and Juncheng Zhou for excellent research support.We are indebted to our colleagues who worked on

115、the production process,media relations,and dissemination.We truly appreciate the herculean efforts of Adriana Maximiliano in assembling the print publication and designing the cover,with assistance from Hazel Macadangdang.Graeme Littler produced the online publication and provided editorial support,

116、with contributions from Adriana Maximiliano.Therese Reginaldo provided extensive logistical support.Joseph Rebello,Chisako Fukuda,Patricia Katayama,Jewel McFadden,Koichi Omori,and Nandita Roy managed media relations and dissemination.xxiv The production of this book was managed by the Prospects Grou

117、p of the Development Economics Vice Presidency of the World Bank Group.The Prospects Group gratefully acknowledges financial support from the Policy and Human Resources Development(PHRD)Fund provided by the Government of Japan.xxv Elwyn Davies,Senior Economist,World Bank Sergiy Kasyanenko,Economist,

118、World Bank Philip Kenworthy,Economist,World Bank Sinem Kilic Celik,Economist,International Monetary Fund M.Ayhan Kose,Director and Deputy Chief Economist,World Bank Gaurav Nayyar,Lead Economist,World Bank Franziska Ohnsorge,Manager,World Bank Hayley Pallan,Economist,World Bank Lucia Quaglietti,Econo

119、mist,OECD Cordula Rastogi,Senior Economist,World Bank Franz Ulrich Ruch,Senior Economist,World Bank Kersten Stamm,Economist,World Bank Ekaterine Vashakmadze,Senior Economist,World Bank Dana Vorisek,Senior Economist,World Bank Collette Wheeler,Senior Economist,World Bank Shu Yu,Senior Economist,World

120、 Bank Authors and contributors xxvii Abbreviations AEs BK CF COVID-19 EAP ECA EMDEs EU FDI GCC GDP GEP GVC HICs HP ICRG ICT IMF LAC LICs MICs MNA MVF NDCs OECD PF PMI PPP R&D RHS RTA SAR SDGs advanced economies Baxter-King filter Christiano-Fitzgerald filter coronavirus disease 2019 East Asia and Pa

121、cific Europe and Central Asia emerging market and developing economies European Union foreign direct investment Gulf Cooperation Council gross domestic product Global Economic Prospects global value chain high-income countries Hodrick-Prescott filter International Country Risk Guide information and

122、communications technology International Monetary Fund Latin America and the Caribbean low-income countries middle-income countries Middle East and North Africa multivariate filter nationally determined contributions Organisation for Economic Co-operation and Development production function approach

123、purchasing managers index purchasing power parity research and development right-hand side regional trade agreement South Asia Sustainable Development Goals xxviii SMEs SSA TFP UCM WDI WEO small and medium enterprises Sub-Saharan Africa total factor productivity Unobserved Components Model World Dev

124、elopment Indicators World Economic Outlook Across the world,a structural growth slowdown is underway:at current trends,the global potential growth ratethe maximum rate at which an economy can grow without igniting inflationis expected to fall to a three-decade low over the remainder of the 2020s.Nea

125、rly all the forces that have powered growth and prosperity since the early 1990s have weakened,not solely because of a series of shocks to the global economy over the past three years.The growth rates of investment and total factor productivity are declining.The global labor force is agingand expand

126、ing more slowly.International trade growth is much weaker now than it was in the early 2000s.The slowdown could be even more pronounced if financial crises erupt in major economies and spread to other countries as these types of episodes often lead to lasting damage to potential growth.A persistent

127、and broad-based decline in long-term growth prospects imperils the ability of emerging market and developing economies(EMDEs)to combat poverty,tackle climate change,and meet other key development objectives.These challenges call for an ambitious policy response at the national and global levels.The

128、slowdown can be reversed by the end of the 2020sif all countries replicate some of their best policy efforts of recent decades and accompany them with a major investment push grounded in robust macroeconomic frameworks.Boosting human capital and labor force participation and making sound climate-rel

129、ated investments can also make a measurable difference in lifting growth prospects.Bold policy actions at the national level will need to be supported by increased cross-border cooperation and substantial financing from the global community.Slowing growth,dimming prospects In 2015,Kaushik Basu,the W

130、orld Bank Groups Chief Economist at the time,asked us to assess long-term growth prospects of emerging market and developing economies(EMDEs).His request inspired us to prepare the study“Slowdown in Emerging Markets:Rough Patch or Prolonged Weakness?”1 The question in the title was a deliberate choi

131、ce since the study documented a synchronous slowdown in these economies during 2010-15 but concluded that cyclical factors partly played a role and that policies could reverse the decline in growth.We now have a definitive answer to the question we posed in the title:These economies are in the midst

132、 of a prolonged period of weakness.Note:This chapter was prepared by M.Ayhan Kose and Franziska Ohnsorge.1 Our earlier study focused on both cyclical and structural drivers of the slowdown(Didier at al.2015).This study also acknowledges the importance of cyclical factors but focuses on structural dr

133、ivers that have become more prominent in explaining the decline in growth.It is much more comprehensive than our earlier paper as it builds on,and expands,multiple studies we have conducted since then.Some of these were featured in the World Bank Groups flagship Global Economic Prospects report in w

134、hich we examined different aspects of growth in EMDEs.OVERVIEW o.2OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS This book argues that the weakness in growth will likely extend for the remainder of the 2020s.It could be even more pronounced if financial crises erupt in major economies and,especially,if

135、 they trigger a global recession.The experience of the past two decades has shown that financial crises and recessions cause lasting damage to growth;this would compound the weaknesses in the main drivers of growth that are already embedded in current trends.In addition,the necessary policy interven

136、tions could be delayed,as often happened during the past decade,such that global growth over the 2020s could disappoint once again.It will take a herculean collective policy effort to restore growth in the next decade to the average of the previous one.At the national level,this effort will require

137、these economies to repeat their own best 10-year record in a wide range of policies.At the global level,given the cross-border nature of many challenges confronting growth,the policy response requires stronger cooperation,larger financing,and reenergized push for mobilization of private capital.Majo

138、r shocks have battered the global economy over the past three years including the COVID-19 pandemic and the war in Ukraine.After countries had provided the necessary support for businesses and individuals hurt by the pandemic,cyclical policies turned contractionary.The steep rise in inflation over t

139、he past two years has led to the sharpest tightening of global monetary policy in four decades.Fiscal policy has also become less supportive following the significant deterioration of government budget balances during the 2020 global recession,when debt levels reached historical highs.Amid these mul

140、tiple adverse shocks and limited policy space,the global economy experienced over the past three years the sharpest growth slowdown following a global recession.Even as policy makers confront these short-term challenges,a longer-term setback of considerable importance has been brewing quietly:a pers

141、istent decline in long-term growth prospects.In the past decade,growth in EMDEs and advanced economies alike has slowed sharply(table A.1).Global growth declined from a recent peak of 4.5 percent in 2010 to a projected low of 1.7 percent in 2023(figure o.1).The slowdown was widespread:in 80 percent

142、of advanced economies and 75 percent of EMDEs,average annual growth was lower during 2011-21 than during 2000-10.The slowdown was pronounced in EMDEs.As a result,the pace at which the per capita incomes of these economies are catching up to those of advanced economies(so-called income convergence)ha

143、s fallen:In 2011-21,EMDE per capita incomes grew 2.0 percentage points a year faster than advanced-economy per capita incomes.But that was considerably smaller than the differential of 3.4 percentage points a year during 2000-10.The convergence process was set back in all EMDE regions.Middle-income

144、EMDEs(MICs)were somewhat harder hit than low-income countries(LICs).MIC per capitaincome growth slipped by 1.4 percentage points,from 4.9 percent in 2000-10 to 3.5percent in 2011-21(table A.2).LIC per capita income growth also slowed,by 1.2percentage points,to 1.7 percent in 2011-21 from 2.9 percent

145、 in 2000-10.OVERVIEW o.3 FALLING LONG-TERM GROWTH PROSPECTS FIGURE o.1 Growth Growth has slowed sharplyin aggregate and per capita terms and in the majority of countriesfrom its elevated rates in the early 2000s.The pace of per capita income convergence toward advanced economies has slowed in all EM

146、DE regions.B.Per capita growth A.Growth Source:World Bank.Note:EMDEs=emerging market and developing economies.A.B.Projections for 2023-24.GDP-weighted averages(at 2010-19 average exchange rates and prices).C.Yellow horizontal line indicates 50 percent.D.EAP=East Asia and Pacific;ECA=Europe and Centr

147、al Asia;LAC=Latin America and the Caribbean;MNA=Middle East and North Africa;SAR=South Asia;SSA=Sub-Saharan Africa.E.F.MICs=Middle-income countries;LICs=low-income countries.GDP-weighted averages(at 2010-19 average exchange rates and prices).Unbalanced sample of up to 105 MICs and 26 LICs.Projection

148、s for 2022-24 from the World Banks January 2023 Global Economic Prospects report.D.Annual average per capita income growth relative to advanced economies C.Share of countries with slower growth than in the previous decade F.Per capita growth relative to advanced economies E.Growth-6-30369

149、4020022004200620082000222024WorldAdvanced economiesEMDEsPercent020406080100WorldAdvancedeconomiesEMDEs1990-99 average 2000-10 average2000-10 average 2010-21 averagePercent of countries-6-4-202468EAPECALACMNASARSSA2010-21 average1990-99 average2000-10 averagePercentag

150、e points024------24EMDEsMICsLICsPercent0----212022-24EMDEsMICsLICsPercentage points-6-303694020022004200620082000222024WorldAd

151、vanced economiesEMDEsPercento.4 OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS The slowdown represents a deepening crisis of developmentbecause all the fundamental drivers of economic growth have faded(figure o.2).Ordinarily one of the most powerful drivers of economic growth,global trade in 2010-19 gr

152、ew only as fast as overall economic growth,down from twice as fast during 1990-2011.Factor reallocation from less to more productive firms and sectors has also slowed.Gains from better education and health have faded as improvements in education and health care systems have leveled off.Continuing a

153、decade of weakness prior to the pandemic,EMDE investment growth in 2022-24 is projected to average 3.5 percent per year,about half its 2000-21 average.2 After rising over the preceding decades,the growth of the working-age population relative to overall global population growth declined to a three-d

154、ecade low in 2017.Global policy uncertainty has risen while attitudes towards trade integration have turned more cautious.On top of this fading growth momentum,a series of shocksincluding the pandemic and climate-related disastersover the past decade have done lasting damage to the development proce

155、ss.This has been reflected in stalling poverty reduction.Magnifying challenges Weaker long-term growth gives rise to a wide range of challenges.First,it slows the pace of poverty reduction.At projected growth rates,the goal of reducing global extreme poverty to 3 percent of the population by 2030 is

156、 now out of reach.Second,slower output growth tends to reduce the resources available to invest in solving problems confronting the global economy.Without sustained investment growth,it will be difficult,if not impossible,to address climate change and make material progress towards other development

157、 goals.Third,slower long-term output growth implies limited job creation and wage growth,which provides fertile ground for social tensions and is likely to entail slower transitions from informal to formal economic activity.Finally,weaker long-term output growth curtails the resources available to p

158、ay off mounting debt loads,potentially undermining debt sustainability and leading to financial stress.One tool to meet multiple policy priorities The intensifying development challenges the world faces are accompanied by a raft of sometimes competing policy priorities:eliminating extreme poverty,re

159、ducing inequality,achieving higher growth,or combating climate change.The good news is that addressing these priorities requires the same recipe:sustained and robust investment and productivity growth.Through this mechanism,policy makers can overcome these enormous challenges and deliver sustained,s

160、ustainable,and inclusive growth.Such efforts will need to be accompanied by measures to promote investment in human capital,foster gender equality,and strengthen social protection systems.2 Throughout this book,unless otherwise specified,investment refers to real gross fixed capital formation(public

161、 and private combined).OVERVIEW o.5 FALLING LONG-TERM GROWTH PROSPECTS FIGURE o.2 Drivers of output growth All the fundamental drivers of output growth slowed in the past decade.Improvements in human capital,the growth of the labor force,investment(including because of policy uncertainty)and total f

162、actor productivity(including through factor reallocation)all decelerated.These drivers of growth are expected to slow further in the remainder of the current decade.B.TFP growth A.Working-age population Sources:Baker,Bloom,and Davies(2016);Dieppe and Matsuoka(2019);United Nations Population Statisti

163、cs;World Health Organization,Global Health Outlook;World Bank.Note:AEs=advanced economies;EMDEs=emerging market and developing economies;LICs=low-income countries.A.Population weighted averages.The working-age population is defined as people aged 15-64 years.B.GDP-weighted arithmetic average of tota

164、l factor productivity growth.Includes 53 EMDEs and 29 advanced economies.B.-E.Arithmetic annual averages.C.GDP-weighted averages for the period indicated.D.Based on samples of 94 countries during 1995-1999 and 103 countries during 2003-2017.Median of country-specific productivity contributions.Withi

165、n-sector growth shows the contribution of initial real value added-weighted productivity growth and between-sector growth shows the contribution from changes in the employment share.E.For healthy life expectancy(HALE)at birth,annual average change in population-weighted average for 179 countries bet

166、ween 2000 and 2010 and between 2011 and 2019.For lower secondary school completion rate(in percent of relevant age group),annual average change in world aggregate between 2000 and 2010 and between 2010 and 2019.F.Period averages.Global policy uncertainty is a GDP-weighted average of national Economi

167、c Policy Uncertainty indices for 21 countries:Australia,Brazil,Canada,Chile,China,Colombia,France,Germany,Greece,India,Ireland,Italy,Japan,Mexico,the Netherlands,Russia,South Korea,Spain,Sweden,the United Kingdom,and the United States(Baker,Bloom,and Davies 2016).D.Contributions to labor productivit

168、y growth C.Investment growth F.Global policy uncertainty E.Improvement in human capital indicators 0----212022-30WorldAEsEMDEs2000-21 averagePercent0246810WorldAdvancedeconomiesEMDEsEMDEsexcludingChinaPercent-0s-171

169、990s-171990s-17AdvancedeconomiesEMDEsLICsWithin sectorBetween sectorPercentage points0.00.10.20.30.400.40.81.22000s2010s2000s2010sSecondary completionrateHealthy life expectancy(RHS)Percentage points of populationYears0501001502-21Index556065707199019931

170、9965200820020202320262029AEsWorldEMDEsPercent of total populationo.6 OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS Achieving this is not easy:policies that are effective in lifting long-term growth and investment are often difficult to design and even more difficult to implement.

171、They tend to involve structural interventions that can sometimes impose substantial,asymmetric costs on parts of the society and therefore can face stiff resistance from vested interests.Some of these policies need to be accompanied by supportive measures to ensure inclusive growth.Moreover,the grow

172、th dividends of these policies often take time to accrue.Nonetheless,achieving strong and sustained growth is the only plausible path to durably address climate,poverty and a wide range of other development challenges.Understanding long-term growth:A framework The book frames long-term growth around

173、 the concept of potential growththe maximum growth rate that an economy can sustain in the long term at full employment and full capacity without igniting inflation.An economys potential GDP growth rate is effectively its speed limit.It influences the full spectrum of policies that determine economi

174、c and development outcomes:the level of benchmark interest rates,the scale of government spending,and even the expected size of returns to investors.The speed limit can be raisedthrough policies that expand the labor supply,boost productivity,and ramp up investment.Although the concept of potential

175、growth has been much explored,it is not directly observable and must be inferred from other data.The book develops a variety of measures of potential growth and examines their evolution over time.It presents a detailed discussion of linkages between potential growth and its underlying drivers:capita

176、l accumulation(through investment growth),labor force growth,and the growth of total factor productivity(TFP),which is the part of economic growth that results from more efficient use of inputs and which is often the result of technological changes.The book also pays special attention to development

177、s in the trade and services sectorsboth of which have been key contributors to productivity growth and changes in labor markets.Contributions to the literature There is a rich literature on policies to improve long-term growth prospects.3 This book makes three key contributions with its introduction

178、 of a new database of potential 3 Several studies have examined the links between growth and inequality(for example,Cerra et al.2021)or between short-term shocks and long-term output trends(for example,Cerra,Fatas,and Saxena 2020).Others have looked in depth at specific drivers of growth,such as inn

179、ovation(Aghion,Akcigit,and Howitt 2015;Aghion,Antonin,and Bunel 2021;Aghion and Howitt 2005);institutions(Acemoglu 2012;Acemoglu,Johnson,and Robinson 2005);culture(Gorodnichenko and Roland 2011);political economy(Allen et al.2014;Acemoglu and Robinson 2012);trade(Rodrik 2017);finance(Arcand,Berkes,a

180、nd Panizza 2015;Obstfeld 2009);digitalization(Brynjolfsson and McAfee 2014,2017);or human capital(Schady et al.2023).Some studies have examined growth prospects in different regions,such as Gill and Raiser(2012)for Europe;Ulku and Zaourak(2022)for Central America;Alvarez and de Gregorio(2014)for Lat

181、in America;and McMillan,Rodrik,and Sepulveda(2017)for seven country case studies in Africa,Asia,and Latin America.Others,such as Loayza and Pennings(2022),have developed tools to model long-term growth.Finally,a group of studies have examined firm-level drivers of growth prospects(for example,Comin

182、and Mulani 2009;Fisman and Svensson 2007;and Goehuys and Veugelers 2012).OVERVIEW o.7 FALLING LONG-TERM GROWTH PROSPECTS 4 Previous studies have been confined to a single methodology,such as the production function approach(OECD 2014)or multivariate filters(ADB 2016;IMF 2015).Some earlier studies es

183、timated trends for only a subset of measures of potential growth(for example,Chalaux and Guillemette 2019;Kilic Celik,Kose,and Ohnsorge 2020).The books focus on long-term potential growth projections also contrasts with the previous literature,which has examined past trends(Asian Development Bank 20

184、16;Dabla-Norris et al.2015;IMF 2015;OECD 2014).5 Earlier work has estimated the effects of recessions on potential growth but they were primarily confined to OECD countries and to one specific measure of potential growth(Furceri and Mourougane 2012;Mourougane 2017).6 Previous studies have investigat

185、ed the link between actual growth of output or productivity and structural reforms,focusing on the near-term benefits(Prati,Onorato,and Papageorgiou 2013),productivity effects(Adler et al.2017;Dabla-Norris,Ho,and Kyobe 2016),or a sample consisting of mostly advanced economies(Banerji et al.2017;IMF

186、2015,2016).growth,emphasis on global and region-specific growth trends and prospects,and the presentation of a rich menu of policies to deliver better growth outcomes.Comprehensive database of potential growth.The book introduces the first comprehensive database of the nine most commonly used estima

187、tes of potential output growth for the largest available country sample of up to 173 economies(37 advanced economies and 136 EMDEs)over 1981-2021(chapter 1).These estimates are based on multiple methodologies.The book also examines prospects for potential growth based on projections of its structura

188、l driversgrowth of physical and human capital,growth of labor supply,and growth of TFP.4 In addition,using the new database,it presents the first detailed analysis of the damage to potential growth from many adverse developments in EMDEsincluding recessions,banking crises,epidemics,and natural disas

189、ters(chapters 1 and 5).5 Regional aspects of potential growth and investment.This book is the first to examine EMDE regional trends and the prospects for the growth of potential output and investment since the onset of the COVID-19 pandemic.In dedicated chapters,the book also discusses regional poli

190、cy priorities and options to strengthen investment and potential growth(chapter 2 and chapter 4).Its analysis draws on the specific literature and data for each of the six World Bank Group regions:East Asia and the Pacific(EAP),Europe and Central Asia(ECA),Latin America and the Caribbean(LAC),the Mi

191、ddle East and North Africa(MNA),South Asia(SAR),and Sub-Saharan Africa(SSA).Policies.The book explores,in a consistent framework,policy options to lift potential growth.In contrast to earlier studies,the discussion of policy options is directly based on empirical analysis.6 Some of these policies in

192、clude reforms of education and healthcare systems as well as labor markets(chapter 5).The book also presents an extensive menu of policies to boost investment and productivity growth and examines policy interventions geared toward promoting growth in services activity and international trade.Investm

193、ent as a key driver of potential growth.As noted above,investment is essential to deliver sustained potential output growth,improve living standards,and make progress in achieving the Sustainable Development Goals(SDGs)and fulfilling o.8 OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS commitments made u

194、nder the Paris Agreement on climate change.This book provides the first comprehensive analysis of investment growth in a large sample of EMDEs since the pandemic and Russias invasion of Ukraine.It examines the likely medium-and long-term consequences of the damage to investment in EMDEs from recent

195、adverse shocks,focusing on the effects on productivity,potential output growth,trade,and the ability to achieve the SDGs and climate-related goals.It also describes a rich menu of policies to revive investment growth.Trade as a traditional engine of growth.Trade has been a powerful engine for EMDE g

196、rowth over the past four decades but its role is now under threat.Te book presents a comprehensive analysis of trade costs and avenues to promote trade growth(chapter 6).It goes beyond previous research in assessing the role of trade policyincluding on tariffs and participation in trade agreementsin

197、 determining trade costs(Arvis et al.2016;Chen and Novy 2012;World Bank 2021).This analysis is complemented by an event study of the evolution of trade in goods and services around global recessions,including the pandemic-induced global recession of 2020.Building on the econometric analysis,the chap

198、ter derives policy options to lower trade costs.Services as a new engine of growth.High hopes have been placed on the services sector as a new engine of economic growth as traditional engines of growth such as goods trade and resource sectors sputter.7 This book establishes a set of stylized facts t

199、hat summarize the role of the services sector in growth and development over the past three decades(chapter 7).It presents growth decompositions that provide estimates of the contributions of subsectors of services as well as the contributions of the growth of factor inputs versus TFP.The book also

200、documents how the pandemic has affected prospects and policy priorities for services-led growth,building on some recent studies.It assesses future growth opportunities linked to the acceleration in digitalization,building on the literature on how the digital economy is expanding opportunities to boo

201、st productivity in the services sector.Key findings and policy messages Using a comprehensive database of multiple measures of potential growth,this book examines trends in potential growth and its drivers(especially investment),global and regional prospects for potential growth and investment over

202、the 2020s,and a range of policy options to lift potential growth.It documents three major findings.First,there 7 Major shifts are underway in commodity markets as part of the energy transition,as discussed in Baffes and Nagle(2022).Recent work considers the potential of services as an engine of grow

203、th and trade(Nayyar,Hallward-Driemeier,and Davies 2021a,2021b;Park and Noland 2013;OECD 2005;Lee and McKibbin 2018)and trade(Baldwin 2016;Francois and Hoekman 2010).Some recent studies also consider the effects of the pandemic on growth and household income or firm sales distribution(Apedo-Amah et a

204、l.2020;Chetty et al.2020;Narayan et al.2022).The book expands on the growing literature on structural change and productivity growth in EMDEs,which highlights changes in the relative contributions of the broader manufacturing and services sectors,and demand-and supply-side factors(Fan,Peters,and Zil

205、ibotti 2021;Kinfemichael and Morshed 2019;McMillan and Rodrik 2011;Nayyar,Hallward-Driemeier,and Davies 2021a,2021b;Rodrik 2016).OVERVIEW o.9 FALLING LONG-TERM GROWTH PROSPECTS has been a protracted,broad-based decline in potential growth and its underlying drivers.Major adverse shocks also reduce p

206、otential growth by leaving a lasting impact on these drivers.Second,the slowdown in potential growth is expected to persist for the rest of this decade.Finally,while they are significant challenges confronting EMDEs,they are not insurmountable.It is possible to reverse the slowdown in potential grow

207、th and chart a sustained,sustainable,and inclusive growth path by implementing ambitious,broad-based and forceful policies at the national and global levels.Longstanding,widespread decline in potential growth All measures document a widespread decline in potential growth in the decade 2011-21,relati

208、ve to the preceding decade(chapter 1).Global potential growth fell to 2.6 percent a year during 2011-21 from 3.5 percent a year during 2000-10;meanwhile,EMDE potential growth fell to 5.0 percent a year during 2011-21 from 6.0 percent a year during 2000-10(table A.3).The weakening of potential growth

209、 was highly synchronizous across countries:during 2011-21,potential growth was below its 2000-10 average in almost all advanced economies and nearly 60 percent of EMDEs.Among EMDE regions,the steepest slowdown occurred in MNA,followed by EAP,although potential growth in EAP remained higher than in a

210、ll other EMDE regions except SAR,where potential growth remained broadly unchanged(chapter 2).This slowdown in potential growth can be attributed to many factors as all fundamental drivers of growth faded.The period between 2011 and 2021 was marked globally by slower TFP growth,slower labor supply g

211、rowth,and slower investment growth than in the period 2000-10.In addition,the global economy has been rocked by financial crises,global recessions,bouts of inflation,health crises such as epidemics and a pandemic,climate-related disasters,and wars and conflict of varying severity.Almost all of these

212、 shocks,and especially the global recessions,left lasting legacies of damaged drivers of,and slower rates of,potential growth(figure o.3).Utilizing a series of econometric approaches,this book quantifies this damage.Recessions resulted in lasting damage to the productivity capacity of the global eco

213、nomy.National recessions were associated with 1.4 percentage point slower potential growth,on average,even five years later(chapter 1).Over the medium term,recessions tended to have a somewhat more severe impact than did other adverse eventssuch as banking crises,epidemics,or other natural disasters

214、.The effect of recessions on potential growth operated through multiple channels.Four to five years after a typical recession,investment growth,employment growth,and TFP growth remained significantly lower than in“normal”yearsby 3.0 percentage points for investment,0.7 percentage point for employmen

215、t,and 0.7 percentage point for TFP.Banking crises were associated with initially larger declines in potential growth than recessions,peaking at 1.8 percentage points after two years as a result of collapses in o.10 OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS FIGURE o.3 Lasting damage to potential gr

216、owth of recessions Potential growth fell during the global recessions of 2009 and 2020,reflecting declines in invest-ment growth,labor force growth,and TFP growth.The decline was particularly steep in the COVID-19-induced global recession of 2020,which was unusual also in the disproportionately larg

217、e loss in services activity.B.Advanced economies:Potential growth A.World:Potential growth Source:World Bank.Note:EMDEs=emerging market and developing economies.In each panel,the horizontal axis shows years,with t representing the recession year.A.-C.“Average”is an unweighted average of seven potent

218、ial growth measures(excluding forecasts).“Range”reflects the maximum and minimum.Figures show potential growth around t=2009 and t=2020.D.Figures show the contributions of growth in capital,TFP,and labor to potential growth around t=2009 and t=2020.E.F.Charts show the unweighted average level of rea

219、l value added in services(blue)and manufacturing(red)in the years around the recession year t,indexed to 100 for the year preceding the recession.D.World:Contributions to potential growth C.EMDEs:Potential growth F.National recession in 2020 E.National recessions before 2020 -2-101234t-2t-1t=0t+1t+2

220、t-2t-1t=0t+1t+22009 global recession2020 global recessionAverageRangePercent0246810t-2t-1t=0t+1t+2t-2t-1t=0t+1t+22009 global recession2020 global recessionAverageRangePercent0.00.51.01.52.0t-2t-1t=0t+1t+2t-2t-1t=0t+1t+22009 global recession2020 global recessionCapitalTFPLaborPercentage points9296100

221、104t-2t-1t0t+1t+2ServicesManufacturingIndex,100=Pre-recession value added949698100102t-2t-1t0t+1t+2ServicesManufacturingIndex,100=Pre-recession value added-1012345t-2t-1t=0t+1t+2t-2t-1t=0t+1t+22009 global recession2020 global recessionAverageRangePercentOVERVIEW o.11 FALLING LONG-TERM GROWTH PROSPEC

222、TS investment.However,quick recoveries in investment generally followed,such that the damage to potential growth after five years was only 1.2 percentage pointsless than after recessions.In contrast to recessions,banking crises tended to be mainly associated with lasting productivity losses.Climate

223、change has increased the frequency and severity of weather-related natural disasters.Over the past two decades,these natural disasters have caused a significant decline in potential growth(chapter 5).For example,over the medium-term,depending on the magnitude and speed of reconstruction efforts,dama

224、ge to potential growth varied from nil to 10 percent three years after the disaster.Some countries,especially small states,have suffered much larger damage than is suggested by the average effecton average 5 percent of GDP per year.These losses did not occur in a predictable pattern.Instead,it was n

225、ot uncommon for the damages from a single climate-related disaster to cost a substantial portion of a countrys GDP,or even multiples of GDP in extreme cases.A lost decade in the making?Weaker growth prospects The slowdown in potential growth during 2011-21 is projected to extend into the remainder o

226、f the current decade(figure o.4).Projections for its fundamental drivers suggest that global potential growth will slow further,by 0.4 percentage point a year from 2011-21,to an average of 2.2 percent a year in 2022-30,the slowest pace since 2000(chapter 5).About half of the slowdown is due to demog

227、raphic factors from an aging population,including slowing growth in the working-age population and declining labor-force participation.EMDE potential growth is projected to slow by 1.0 percentage point a year to an average of 4.0 percent a year in 2022-30.The decline will be internationally widespre

228、ad:Economies accounting for nearly 80 percent of global GDP,including most EMDEs,are projected to experience a slowdown in potential growth between 2011-21 and 2022-30.All traditional drivers of growth,including trade,are expected to weaken in the remainder of this decade.However,relatively healthie

229、r growth is expected in the services sector.Investment.The slowdown in investment during 2011-21 will likely extend into the remainder of the current decade because of the effects of the COVID-19 pandemic,Russias invasion of Ukraine,limited policy space,and tight financial conditions(figure o.5;chap

230、ter 3).In 2022-24,investment growth in EMDEs is projected to average 3.5 percent per year,about half its average annual growth during 2000-21(chapter 3).Projected investment growth through 2024 will be insufficient to return aggregate EMDE investment to its pre-pandemic trend from 2010-19(the period

231、 between the highly disruptive 2009 and 2020 global recessions).Annual average investment growth in 2022-30 is now forecast to be 0.3-1.8 percentage points lower,on average,than in 2011-21 in all regions except in LAC and SAR,where adverse shocks that depressed investment growth in the 2010s are not

232、 expected to recur.After a gradual decline over the past decade,foreign direct investment(FDI)will also likely remain weak over the remainder of the 2020s.o.12 OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS FIGURE o.4 Potential growth A broad-based weakening of potential growth in the past decade is ex

233、pected to continue in the remainder of the current decade.In part,this reflects a weakening of investment growth that has been reflected in downgrades to consensus forecasts.B.Potential growth A.Potential growth Source:Consensus Economics;Penn World Tables;World Bank.Note:AEs=advanced economies;EMDE

234、s=emerging market and developing economies.EAP=East Asia and Pacific;ECA=Europe and Central Asia;LAC=Latin America and the Caribbean;MNA=Middle East and North Africa;SAR=South Asia;SSA=Sub-Saharan Africa.A.-E.Arithmetic annual averages.A.B.Based on production function approach.GDP-weighted averages

235、for a sample of 29 advanced economies and 53 EMDEs.C.D.Based on production function approach.Sample includes 4 countries in EAP,9 in ECA,15 in LAC,7 in MNA,2 in SAR,and 13 in SSA.Data for 2022-30 are forecasts.E.Weighted averages by real annual fixed investment in constant U.S.dollars.Sample include

236、s 8 EAP,12 ECA,19 LAC,9 MNA,3 SAR,and 19 SSA economies.F.Includes data for six economies in EAP(China,Indonesia,Malaysia,Philippines,Thailand,Vietnam),seven economies in ECA(Bulgaria,Croatia,Hungary,Poland,Romania,Russia,Ukraine),six economies in LAC(Argentina,Brazil,Chile,Colombia,Mexico,Peru)and o

237、ne economy in SAR(India).Single-year missing data are interpolated.D.Contributions to potential growth C.Contributions to potential growth F.Five-year-ahead consensus forecasts of investment growth E.Investment growth,by region 3.64.04.44.85.25.61.82.02.22.42.62.82011-21Factor-21Factor202

238、2-30WorldEMDEs(RHS)PercentBaselineDemographic trendsOther factorsPercent02468----212022-30EAPECALACTFPCapitalLaborPotential growthPercent024----212022-30MNASARSSATFPCapitalLaborPotential growthPer

239、cent02468101214EAPECALACMNASARSSAPercent-4000022EAPEAP excl.ChinaECALACSARPercent024---21WorldAEsEMDEsPotential growthActual growth2000-21 potential growthPercentOVERVIEW o.13 FALLING LONG-TERM G

240、ROWTH PROSPECTS FIGURE o.5 Global trade and investment Global trade growth has slowed,in part due to growing use of restrictive trade measures.Foreign direct investment inflows to EMDEs have weakened since the early 2000s.The recovery in EMDE investment from the 2020 global recession is expected to

241、be less robust than after the global recession of 2009.B.Policy interventions affecting trade A.Global trade Sources:Global Trade Alert(database);Haver Analytics;UNCTAD;World Bank.A.Trade defined as exports and imports of goods and nonfactor services.B.Data exclude late reports for the respective re

242、porting years(the cut-off date is December 31 of each year).C.Investment-weighted average(at 2010-19 average exchange rates and prices),indexed to 100 in the year before the global recession.“0”indicates the year of the global recession(2009 or 2020).D.Last observation in 2021.D.Foreign direct inves

243、tment in EMDEs C.EMDE investment 05001,0001,5002,0002,500201920202021LiberalizingRestrictiveAverage(liberalizing),2009-19Average(restrictive),2009-19Number of new policy measures800-2- recession2020 recessionIndex,year t-1=100Year06200720082009200132014201

244、52001920202021Percent0050020002002200420062008200022Growth2000-08 trend2000-14 trend2000-19 trendIndex,100=2000Trade.Global trade growth may weaken by another 0.4 percentage point per year,on average,during the remainder of the current decade compared with

245、 2011-21,owing partly to slower global output growth and partly to the further waning of structural factors that supported rapid trade expansion in recent decades(chapter 6).Fragmentation of trade and investment networks loom large over trade prospects amid policies that favor suppliers from allied

246、countries(friend-shoring)or nearby countries(near-shoring).The historical record also shows that persistently weak investment growth tends to be associated with slow trade growth.Services.A possible bright spot may be the services sectorprovided its productivity potential can be unlocked(chapter 7).

247、In particular,the pandemic has ushered in a pronounced shift toward digitalization as firms moved many of their activities online.This promises productivity gains if it can be harnessed for better service delivery.Since the pandemic,there has also been a shift toward high-skilled offshorable service

248、 o.14 OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS activities,such as digitally deliverable information and communications technologies(ICTs)and professional services.From technological innovations to the“roaring 2020s”?The implications of technological innovations for future growth prospects have be

249、en a subject of intense debate.Some claim that the global economy will enjoy a surge in economic growth in the coming decades,driven by improvements in productivity thanks to new technologies(Brynjolfsson and McAfee 2014).Others caution that future growth could stall,or even fall,because new technol

250、ogies will likely have a declining marginal impact on productivity,and structural challenges associated with aging and sluggish growth of investment will adversely affect prospects(Gordon 2016).As the world gradually emerges from the pandemic-induced recession of 2020,it is tempting to look back to

251、the 1918 Spanish flu and hope for a decade of rapid global growth reminiscent of the“Roaring Twenties”of that era because of recent technological innovations.Building on technological breakthroughs in earlier decades,North America and Europe enjoyed rapid modernization and strong economic growth in

252、the 1920s.Automobiles replaced horse-drawn transportation and became ubiquitous as improvements in assembly lines cut costs.Newly built electrical grids paved the way for rapid industrial and household electrification.The economies of the United States,Japan,and some European countries became more p

253、roductive.Global growth that averaged 3.6 percent in the 1920s was double that of the preceding two decades.There is no question about the potential of recent technological innovations in transforming our lives across the world,in many dimensions.However,in light of the trends of the past two decade

254、s and the persistent slowdown in the fundamental sources of growth,our analysis concludes that the 2020s are more likely to be“disappointing”than“roaring”for the global economy,unless a comprehensive set of policies are put in place.Trends are not destiny:Policies to boost potential growth It is pos

255、sible to reverse the slowdown in potential growth through structural policy interventions.Structural policies associated with higher physical capital investment,improved human capital,and faster labor supply growth could raise potential growth by 0.7 percentage point a year in 2022-30both globally a

256、nd in EMDEs.This would offset the 0.4 percentage point decline in global potential growth between 2011-21 and 2022-30 projected in the baseline scenario and most of the 1.0 percentage point slowdown projected for EMDEs(figure o.6).Global potential growth would rise to 2.9 percent per yearabove its 2

257、011-21 average of 2.6 percent,but still well below its 2000-10 average of 3.5 percent;EMDE potential growth,at 4.7 percent per year would remain below its 2011-21 average of 5.0 percent but by a much-reduced margin.These policies need to be accompanied by robust policy frameworks involving fiscal,mo

258、netary,and financial sector policies.They also need to be supported by interventions by the global community.OVERVIEW o.15 FALLING LONG-TERM GROWTH PROSPECTS FIGURE o.6 Policy options Economic reforms comparable with past achievements,or a major investment boost to meet climate change-related goals,

259、could lift potential growth.In EMDEs,there is room for services sector productivity improvements.Broad-based reforms to shipping and logistics as well as border procedures could lower the costs of goods trade.B.EMDEs potential growth in climate-related infrastructure investment scenarios A.Global po

260、tential growth under reform scenarios Sources:Nayyar,Hallward-Driemeier,and Davies(2021);Penn World Tables;World Bank.Note:AEs=advanced economies;EMDEs=emerging market and developing economies.EAP=East Asia and Pacific;ECA=Europe and Central Asia;LAC=Latin America and the Caribbean;MNA=Middle East a

261、nd North Africa;SAR=South Asia;SSA=Sub-Saharan Africa.GDP-weighted averages.A.-C.Arithmetic annual averages.A.Scenarios assume a repeat,in each country,of each countrys best 10-year improvement.B.Climate-related investment boost assumes an increase in average annual investment over the course of 202

262、2-30 of 2.3 percentage points of GDP in line with the average of 13 countries covered in World Bank Country Climate and Development Reports(Argentina,China,Egypt,Ghana,Iraq,Jordan,Kazakhstan,Morocco,Peru,Philippines,South Africa,Trkiye,and Vietnam).The regional differences are in line with Rozenberg

263、 and Fay(2019).Improvement in spending efficiency assumes that each EMDE moves up two quartiles in the distribution of spending efficiency.C.Sample for employment includes 35 advanced economies and 143 EMDEs,with data until 2019.Sample for output includes 31 advanced economies and 140 EMDEs,with dat

264、a until 2020.D.Bars show the fraction of goods trade costs that would remain after policy improvements.Policy improvements assume that the average EMDE in the quartile of EMDEs with the poorest scores in the liner shipping connectivity index and logistics performance index improves to match the scor

265、e of the average EMDE in the quartile of EMDEs with the best scores for the liner shipping connectivity index and logistics performance index.The comprehensive package assumes that all three scores are improved simultaneously.Data refer to 2018.Gray line indicates 1(that is,unchanged trade costs in

266、2018)among the sample of EMDEs scoring in the poorest quartile on these indicators.D.Reduction in overall trade costs associated with policy improvements C.Composition of output and employment 34-30ImpactImprovement in spending efficiencyClimate-related investment boostBaselinePercent02

267、04060801001991 2019 1990 2020 1991 2019 1990 2020EmploymentOutputEmploymentOutputAdvanced economiesEMDEsServicesAgricultureIndustryPercent0.00.20.40.60.81.0BetterlogisticsBetterborderBettershippingComprehensivereformFraction of trade costs012-30Reform impactSocial benefit reformsLabor m

268、arket reformsEducation and health improvementsInvestment surgeBaselinePercento.16 OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS The book discusses measures to boost human capital,labor supply,and productivity,and explores in depth policies to promote investment,services,and trade.It also explains the

269、importance of strong macroeconomic policy frameworks and the need for support from the global community.Investment.Policy makers in EMDEs can turn these challenges into opportunities by focusing on interventions that can boost investment.Given the enormous challenges associated with climate change,t

270、here is a well-defined need for an ambitious investment push.Climate change is expected to exacerbate extreme poverty by reducing agricultural output,increasing food prices,and worsening food and water insecurity in EMDEs,and increasing the disaster-related damages to the physical environment.As dis

271、cussed above,climate-related disasters are becoming more common,and they weigh particularly heavily on vulnerable countries such as small states.They can also worsen government fiscal positions through lower tax receipts and lower productivity alongside increased spending on reconstruction and publi

272、c services.Addressing gaps between current spending on infrastructure and the level needed to meet development goals can promote investment growth.Prioritizing investment in green infrastructure projects with high economic returns,and fostering the widespread adoption of environmentally sustainable

273、technologies,can support higher growth levels in the long-run while contributing to climate change mitigation.Sound investments aligned with climate goals in key areassuch as transport and energy,climate-smart agriculture and manufacturing,and land and water systemscan all boost long-term growth,whi

274、le also enhancing resilience to future natural disasters.Although green transitions need to be carefully managed,sustainable investmentsincluding by the private sectoroffer significant opportunities.Besides their broader benefits,green investments may represent an important engine for job creation a

275、s they tend to be labor intensive.Addressing climate change and other development challenges also requires structural reforms that encourage the mobilization of private capital and lower barriers of access for the private sector.In many EMDEs,governance and institutional reforms are necessary to imp

276、rove and unify the often fragmented regulatory and institutional environment.Reforms that improve the business climate can stimulate private investment directly and amplify the positive effects of investment,such as less informality and more job creation.All of these policy interventions also help a

277、ttract FDI.All EMDE regions need to invest more heavily in infrastructure(chapter 4).This may be to improve climate resilience,including to protect against floods,storms,and drought and dampen their impact,especially in small states(LAC,EAP)and heavily agriculture-reliant economies(SAR,SSA).It may b

278、e to improve chronically low levels of infrastructure development(SAR,SSA);accommodate rising levels of urbanization(EAP,LAC,SAR).Or it may be to support productivity in sectors that employ a large proportion of the population(for example,agriculture in SSA)or rebuild following conflict(ECA,MNA,SSA)

279、;or improve trade linkages(LAC,SAR).OVERVIEW o.17 FALLING LONG-TERM GROWTH PROSPECTS The investment needed to achieve climate and development goals exceed many governments ability to finance them.Hence,successfully leveraging private sector capital to boost investment requires a set of policies to b

280、alance the risks,costs,and returns of investment projects,and overcoming common obstacles to private investment,such as poor business conditions,insufficient project pipelines,and underdeveloped domestic capital markets.Labor supply and human capital.Policies can aim to raise the active share of the

281、 working-age population,in particular policies to“activate”discouraged workers or groups with historically low participation rates,such as women and younger or older workers.Globally,average female labor force participation in 2011-21,at 54 percent,was three-quarters that of men,which stood at 72 pe

282、rcent;the gap between male and female participation was even larger in EMDEs,at 25 percentage points.Similarly,in both EMDEs and advanced economies,the average participation rate of workers aged 55 years or older was about half that of 30-45-year-old workers,and labor force partici-pation among thos

283、e aged 19-29 years was only four-fifths that of their 30-45 year olds.A set of reforms that gradually raises participation rates in each five-year age group from 55-59 years onwards and that raises female labor force participation rates by their best 10-year improvement on record could increase glob

284、al potential growth rates by as much as 0.2 percentage point per year on average during 2022-30.Considerably greater boosts to potential growth,in excess of 1 percentage point per year,could be achieved in regions such as SAR and MNA if they raised female labor force participation from about half of

285、 the EMDE average to the EMDE average.Improvements to health and,especially,education could be one prong of such a set of reforms to boost labor force participation,since better-educated workers tend to be more firmly attached to labor markets.In addition,improvements in education and health outcome

286、s on par with the best ten-year improvement on record could boost productivity and lift EMDE potential growth by an additional 0.1 percentage point per year,on average,for the remainder of this decade and more over the longer term,Trade.Trade has flagged over the past decade.A major effort to rekind

287、le it could yield large growth dividends over the next one.The costs added to internationally traded goods remain high:on average,they are almost equivalent to a 100 percent tariff,roughly doubling the costs of internationally traded goods relative to domestic goods(chapter 6).The bulk of the costs

288、is accounted for by transportation and logistics,non-tariff barriers,and policy-related standards and regulations;tariffs amount to only 5 percent of average goods trade costs.Trade costs for services tend to be even higher than for goods,largely reflecting regulatory restrictions.To reduce elevated

289、 trade costs in EMDEs,comprehensive reform packages are needed.Trade agreements can reduce trade costs and promote trade,especially if they lower non-tariff barriers as well as tariffs and generate momentum for further domestic reforms(Baldwin and Jaimovich 2010;Plummer 2007).However,even if the glo

290、bal environment is not conducive to progress in such agreements,countries can take action o.18 OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS at home to rekindle trade.For example,they can streamline trade processes and customs clearance requirements;enhance domestic trade-supporting infrastructure;inc

291、rease competition in domestic logistics and in retail and wholesale trade;reduce tariffs;lower the costs of compliance with standards and regulations;and reduce corruption.Empirical analysis suggests that reforms that lift an EMDE in the quartile of countries with the highest shipping and logistics

292、costs to the quartile of those with the lowest costs could cut its trade costs in half.For maximum effect,such reforms need to be embedded in broader improvements such as in human capital and digital connectivity(Devarajan 2019;Okonjo-Iweala and Coulibaly 2019).Trade can also play a critical role in

293、 the climate transition(Devarajan et al.2022).It has the potential to promote the production of goods and services necessary for transitioning to low-carbon economies.In addition,trade delivers goods and services that are key to help countries recover from extreme weather events.However,evidence ind

294、icates that in some countries,entry into global value chains in manufacturing has been accompanied by greater carbon emissions,and that global value chains have contributed to greater waste and increased shipping(World Bank 2020).Shipping accounts for 7 percent of global carbon emissions and 15 perc

295、ent of global emissions of sulfur and nitrogen(World Bank 2020).A number of policies can be implemented to reduce trade costs in a climate-friendly way.For example,policies can be designed to remove the current bias in many countries tariff schedules favoring carbon-intensive goods and eliminate res

296、trictions on access to environmentally friendly goods and services(Brenton and Chemutai 2021;World Bank 2020).In addition,multilateral negotiations can focus not only on tariffs on environmental goods but also on nontariff measures and regulations affecting servicesaccess to which is often vital for

297、 implementing the new technologies embodied in environmentally friendly goods.Services.Policy interventions can also help countries unlock the potential of the services sector to drive economic growth(chapter 7).Supporting the diffusion of digital technologies in EMDEs remains central to deliver bet

298、ter growth outcomes.In this context,investing in ICT infrastructure,updating regulatory frameworks around data,and strengthening management capabilities and worker skills are important.Countries can promote the expansion of productive,high-skilled,offshorable services by enabling greater use of onli

299、ne communications and digital platforms,reducing barriers to services trade,and supporting training in relevant skills.Where education systems are weak,but reliable and widespread internet access exists,it would be possible to increase utilization of higher-quality online schooling and training.Digi

300、tal technologies may expand access to finance in the poorest countries,enable more effective government service delivery,and accelerate the trend toward the automation of some routine occupations.In addition,regulatory reforms can support investment to revive low-skilled contact services,such as tra

301、nsportation,that employ large numbers of people.The prospect for services-led growth will also be influenced by climate-change considerations.The services sector can play an important role in climate mitigation and OVERVIEW o.19 FALLING LONG-TERM GROWTH PROSPECTS adaptation.For instance,financial se

302、rvices can play a fundamental role in mobilizing the resources needed for necessary investments(Grippa,Schmittmann,and Suntheim 2019).Similarly,engineering and environmental consulting services will likely be central to enabling energy-efficiency improvements(World Economic Forum 2022).Macroeconomic

303、 policies.Robust macroeconomic policy frameworks play an important role in boosting long-term growth prospects.They can help pro-actively smooth business cycles to avoid the disruptions and distortions associated with adverse shocks.They can ensure that social protection systems are geared toward mi

304、nimizing long-term damage from such shocks.In addition,they can instill confidence in sound policy making and buttress the credibility of institutions.Robust fiscal and monetary policy frameworks are founded on transparent and rules-based approaches.Fiscal rules and medium-term budget frameworks can

305、 help countries maintain sustainable finances and accumulate reserves when the economy is doing well.These types of disciplined fiscal policy frameworks are especially critical nowadays to support growth prospects amid elevated debt levels and tight global financial conditions.In a deficit-neutral m

306、anner,they can guide government spending toward policies with long-term growth benefits,such as in health,education,or transport,or expand revenue bases to increase financing for such priority policies.Better fiscal frameworks also assist monetary policy by restraining procyclical spending that coul

307、d contribute to demand pressures.A transparent and independent central bank will be better placed to maintain price stability,thereby helping to create a macroeconomic environment that is conducive to strong growth.In particular,by establishing an environment of low and stable inflation over the med

308、ium term,and thus fostering confidence in macroeconomic stability,central banks can support private investment growth(World Bank 2022).Strong monetary policy frameworks are currently particularly important to overcome inflation and stabilize inflation expectations.Monetary policy can also play a cou

309、ntercyclical role through its management of interest rates and credit growth,thereby supporting investment growth when activity is weak and inflation is low but helping to contain investment when the economy is overheating.8 To avoid boom-bust cycles that do lasting damage to investment and potentia

310、l growth,proactive financial-sector supervision and regulation can mitigate risksespecially in countries with financial markets that are developing rapidly and becoming more integrated globally.In EMDEs without a prudential authority or prudential powers,creating or empowering these institutions is

311、a priority.In EMDEs with the appropriate institutions,flexible and well-targeted tools are needed to manage balance-sheet mismatches,foreign-currency and capital-flow-related risk,and asset-price misalignment with economic fundamentals.8 Fiscal challenges combined with weak growth prospects complica

312、te monetary policy when inflation is high(Ha,Kose,and Ohnsorge 2022)and increase the risk of recession(Guenette,Kose,and Sugawara 2022).o.20 OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS Global cooperation.Since many of the challenges faced by EMDEs transcend national borders,it is essential to streng

313、then global cooperation to address them.The increasing frequency and severity of climate-related disasters in recent years highlight the escalating costs of climate change:the global community must therefore work together to accelerate progress toward meeting the goals of the Paris Agreement.In addi

314、tion,there is a pressing need to reduce the economic,health,and social costs of climate change,many of which are borne disproportionately by vulnerable populations in EMDEs,particularly in LICs.More pressingly,the global community can help to expand the financing and capacity-building needed to prom

315、ote growth in EMDEsincluding by scaling up climate-change adaptation,increasing green investments,and facilitating a green-energy transition(Bhattachariya,Kharas,and Walker 2023).The increase in investment spending needed to achieve the SDGs(relative to GDP)will be much larger for LICs than for the

316、average EMDE.That implies that substantial additional financing from the global community and the private sector will be needed to close investment gaps.For some LICs that are already inor at high risk ofdebt distress,such financing may need to be accompanied by debt relief to allow them to steer sp

317、ending toward development goals instead of debt service.Synopsis The book features three interconnected parts.Part I analyzes the evolution of global and regional potential growth using a new comprehensive database.Part II focuses on global and regional investment dynamics and policies to promote in

318、vestment growth.Part III presents a detailed analysis of prospects for potential growth and policy measures that can lift it.It turns to the roles of services and trade as engines of long-term economic growth.The book presents a wide menu of policy options for improving growth prospects in each chap

319、ter.The remainder of this introduction presents a summary of each chapter.After presenting the motivation of the chapter,each summary explains the main questions,contributions to the literature,and analytical findings.After these summaries,a brief discussion of future research directions is presente

320、d.Part I.Potential Growth:An Economys Speed Limit In Part I of this volume,chapter 1 explores the conceptual framework and measurement of potential growth.Based on a new database introduced in this chapter,it describes the slowdown in potential growth in the past decade and its sources.Chapter 2 del

321、ves deeper into regional differences in the evolution of potential growth,describes regional prospects,and offers region-specific policy options.Chapter 1.Potential Not Realized:An International Database of Potential Growth In this chapter,Kilic Celik,Kose,Ohnsorge,and Ruch introduce the most compre

322、hensive database of potential growth estimates available to date.Potential growth OVERVIEW o.21 FALLING LONG-TERM GROWTH PROSPECTS is critical to achieve poverty reduction;raise the resources needed to invest in solving global challenges;generate job creation and wage growth,especially in the formal

323、 sector;and achieve or sustain debt sustainability.9 Based on an extensive analysis of the earlier literature,they present three main approaches to estimating potential output growtheach of which has its advantages and disadvantages.Production function approach.The first approach measures potential

324、growth based on production function estimates.This makes it possible to study the contributions of what theory suggests are the fundamental drivers of growththe growth of inputs of the factors of production(labor and capital)and technological progressbut involve assumptions that may be viewed as res

325、trictive.Time-series methods.The second approach obtains measures of potential growth from statistical filters that generate smoothed versions of the actual output growth data as measures of potential output.This may provide the most consistency between estimates of potential growth and output gaps,

326、on the one hand,and indicators of domestic demand pressures,on the other.However,it provides no links between estimated potential growth and its plausible fundamental drivers.Long-term growth expectations.A third approach uses long-term(say five years ahead)forecasts of output growth from economic a

327、nalysts,which may be assumed to incorporate the forecasters judgments about potential growth but whose drivers are highly uncertain.Chapter 1 introduces the most comprehensive international database for the nine most common measures of potential growth based on these three approaches.This database a

328、nd the analysis in this chapter serve as the foundation for chapter 2 and chapter 5which examine past and prospective potential growth globally,by country group,and by region,and policies that can be implemented to improve it.Specifically,this chapter addresses the following questions.How has global

329、 potential growth evolved in the past three decades?How have recessions and other adverse events affected potential growth?Through which channels have such events affected potential growth?Contributions.Chapter 1 makes the following contributions to the literature.First,it introduces the first compr

330、ehensive database for the nine most commonly used measures of potential growth for the largest available country sample of up to 173 economies(37 advanced economies and 136 EMDEs)over 1981-2021.One of the nine measures is 9 Ohnsorge and Yu(2022)present a broader discussion of the challenges in shift

331、ing informal activity into the formal economy.For a discussion of the challenges of low growth for debt sustainability,see Kose,Ohnsorge,and Sugawara(2022),and of government debt reduction,see Kose et al.(2022).o.22 OVERVIEW FALLING LONG-TERM GROWTH PROSPECTS based on the production function approac

332、h;five are based on the application of univariate time-series filters(Hodrick-Prescott,Baxter-King,Christiano-Fitzgerald,Butterworth,and Unobserved Components filters);one applies a multivariate Kalman filter;and two are based on analysts long-term growth forecasts.10 By including a measure that bui

333、lds potential growth from its fundamental drivers,the database allows later chapters to examine the role of policy initiatives such as an investment push to address climate change.Previous studies have limited themselves to a single method of measuring potential growth,such as the production function approach(OECD 2014)or multivariate filters(ADB 2016;IMF 2015).The database updates an earlier vers