GLOBAL PRODUCTIVITY
CHAPTER 5
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and Fang 2015; World Bank 2019a). Strengthening institutional quality by improving judicial systems can help address corruption—a leading obstacle to doing business—and strengthen contract enforcement. Such structural reforms can bolster firm productivity (Kouamé and Tapsoba 2018). Reforms aimed at improving the business environment can also help reduce the size of the informal economy, which tends to have lower productivity than the formal economy.
Conclusion Even before the severe global recession induced by COVID-19, productivity growth was slowing across the six EMDE regions. The slowdown in productivity growth was particularly severe in EAP, ECA, and SSA; productivity growth in LAC and MNA, which had already been low before the GFC, fell to near zero in the post-GFC period amid political uncertainty, episodes of financial stress in major economies, and falling commodity prices. As a result, catch-up to advanced economy productivity levels has slowed in most regions and, in some regions, the gap with advanced economies has widened. Productivity levels in EMDEs were about 18 percent of those in advanced economies in 2013-18 (using GDP-weighted averages), pointing to significant scope for faster productivity growth. In all regions, productivity levels remain less than half of those in advanced economies, although there is significant disparity across and within regions. Whereas productivity in MNA is 40 percent of that in advanced economies, in EAP and SSA it is only 12 percent, and in SAR it is a mere 5 percent. In five of the six EMDE regions—all except MNA—a slowdown in TFP growth contributed to slowing productivity during the post-GFC period. Slowing capital deepening contributed to weaker productivity growth in all regions except SSA. The sectoral analysis in the chapter finds that productivity gains from the reallocation of labor from low-productivity to higher-productivity sectors slowed sharply during the post-GFC period relative to the pre-GFC period in all most regions, and particularly so in LAC and SSA. Falling gains from sectoral reallocation have been accompanied by weaker within-sector productivity gains during the post-GFC period in all regions except EAP, most severely in ECA and LAC. Alongside this failure to reap within- and between-sector productivity gains, a range of other long-standing factors has weighed on productivity growth in recent years. Continued heavy reliance on commodities in some EMDEs, weak governance and institutions, widespread informality in some regions, poor education and job skills, and lack of integration into GVCs are some of the most common bottlenecks. Future analysis should focus on identifying, describing, and quantifying the types of reform that EMDEs can implement to boost productivity growth, especially in the context of possible long-lasting negative effects of COVID-19 on human capital development, investment in physical capital, and trade linkages.
