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INTRODUCTION
GLOBAL PRODUCTIVITY
global supply chains lead countries to retreat from them. This would be particularly damaging to productivity growth prospects in EMDEs, where integration into global value chains has served to boost technological innovation and more effective management processes, and where export-oriented firms are usually the most productive. EMDEs would lose a critical engine of productivity growth if the loss of momentum of global trade growth were sustained. Slowing reallocation within and between sectors. At the sectoral level, labor reallocation toward higher-productivity sectors has historically accounted for about twofifths of overall productivity growth in EMDEs. This mechanism of structural change has also weakened since the GFC. Fading productivity gains from labor reallocation have accounted for about one-third of the postcrisis productivity slowdown in EMDEs (chapter 7). The COVID-19 pandemic may compound this trend. Health crises, such as epidemics and pandemics, restrict the mobility of people, which slows geographical and sectoral labor reallocation.6 Adverse shocks to productivity growth. Natural disasters, wars, and major economic disruptions such as financial crises and deep recessions tend to be accompanied by a large and protracted decline in labor productivity. Natural disasters—70 percent of which are climate-related—account for the vast majority of these adverse events. The number of natural disasters in 2000-18 was nearly double that of the preceding two decades. Health crises, such as pandemics and epidemics, have occurred less frequently than climate disasters—during 2000-18, the world experienced four major epidemics in addition to the swine flu (2009-10) pandemic: SARS (severe acute respiratory syndrome, 2002-03), MERS (Middle East respiratory syndrome, 2012), Ebola (2014-15), and Zika (2015-16). Nonetheless, these epidemics left lasting scars on labor productivity and output by 4 percent cumulatively after three years, mainly through their adverse effects on investment due to elevated uncertainty (chapter 3). The COVID-19 pandemic has hit the global economy at a time of heightened vulnerability, with debt at record highs (Kose et al. 2020). This may aggravate the productivity losses from the pandemic. In general, the long-term productivity losses associated with adverse shocks have tended to be larger and more protracted in economies with larger debt vulnerabilities (chapters 3 and 6). This may have reflected highly indebted economies’ constraints in supporting demand and activity through fiscal and monetary policies.
Implications of COVID-19 for productivity As noted above, there are multiple channels through which COVID-19 could have a negative impact on productivity.
6 For earlier work on the sectoral effects, see Burda (2008); Cusolito and Maloney (2018); Timmer, de Vries, and de Vries (2015); and Fuglie et al. (2020). In the context of COVID-19, specifically, restrictions imposed on the mobility of people affect some sectors more than others and can make it difficult for agricultural workers to move to other sectors (Brinca, Duarte, and Faria-e-Castro 2020; Hale et al. 2020; OECD 2020; Siu and Wong 2004).
