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CHAPTER 5
GLOBAL PRODUCTIVITY
FIGURE 5.12 Drivers of productivity growth in ECA in regional comparison Decelerating productivity in ECA reflects slowing improvements in a broad range of fundamental drivers in recent years. ECA performs poorly relative to other EMDE regions in measures of demography and investment but favorably in terms of drivers such as trade and education.
Institutions
Urbanization
EMDE average
Gender
Education
Trade
Innovation
Investment
Innovation
Institutions
Complexity
Urbanization
Education
0 Trade
60 Gender equality
25 Geography
50
80 Investment
75
100
Demography
120
ECA
Equality
Percent 100
ECA
Demography
Index, 100 = advanced economies 140
B. Drivers of productivity growth, 2017
Complexity
A. Share of EMDEs with slowing post-GFC improvement in underlying drivers of productivity
Sources: Freedom House; Haver Analytics; International Country Risk Guide; Organisation for Economic Co-operation and Development; Observatory of Economic Complexity; Penn World Table; United Nations Educational, Scientific, and Cultural Organization (Institute for Statistics); United Nations Population Prospects; World Integrated Trade Solution; World Bank (Doing Business, Enterprise Surveys, and Global Financial Development Database). Note: ECA = Europe and Central Asia; EMDE = emerging market and developing economy. A.B. Variables are defined as follows: Education = years of education, Urbanization = share of population living in urban areas, Investment = investment as share of GDP, Institutions = government effectiveness, Complexity = Economic Complexity Index of Hidalgo and Hausmann (2009), Equality = income equality defined as (-1)*Gini, Gender equality = share of years of schooling for females to males, Demography = share of population under age 14, Innovation = log patents per capita, and Trade = (exports + imports)/GDP. A. Post-GFC slowdown defined as a decline in the growth of each variable during 2008-17 compared to growth in the pre-GFC period, defined as 1998-2007. The blue bars represent the share of 21 economies in ECA where improvements in each driver of productivity were lower during 2008-17 than in 1998-2007 or changes in 2008-17 were below zero. Orange diamond is the corresponding value for EMDE countries. Horizontal line indicates 50 percent. Sample includes 17-21 ECA economies, depending on the driver, and 79-128 EMDEs. B. Unweighted average levels of drivers normalized as an average of advanced economies as 100 and standard deviation of 10. Blue bars represent average within ECA economies. Orange whiskers represent the range of the average drivers for the six EMDE regions. Horizontal line indicates 100. Sample includes 16-21 ECA economies and 65-127 EMDEs, depending on the driver, and 32 advanced economies.
presence of travel and transport industries and capital-intensive sectors, such as energy and high-value manufacturing industries (World Bank 2020a). Many multinational enterprises have issued profit warnings. This is expected to dampen reinvested earnings— an important source of FDI for ECA economies. The impact could also weigh on the labor market, particularly in Central Europe where foreign-owned firms can account for a quarter of jobs in the private sector.
Policy options Although confronting the COVID-19 pandemic is the primary focus of policy efforts, these measures can be complemented by structural reforms to rekindle productivity growth. A four-pronged policy approach is needed to improve the provision and quality of factors of production, boost firm productivity, promote productivity-enhancing sectoral reallocation, and improve business environments. Some policies, such as changes in SOE ownership and improvements in the investment climate, would offer relatively short-term productivity gains; but others, such as efforts to improve human capital or adjust migration policies, would lay the foundation for longer-term gains. Policy priorities need to be tailored to country-specific circumstances, however.
