Evolution of productivity across regions

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gross domestic product (GDP) per worker, observed in advanced economies, all else equal. In MNA, labor productivity averaged 40 percent of the advanced economy level in the post-GFC period, down from 49 percent before the GFC. In SSA, productivity relative to that in advanced economies dropped to 12 percent, from 13 percent before the GFC, and in LAC stalled at 22 percent.

• Fading support from TFP growth. Although the contribution of human capital to productivity growth was relatively stable, capital deepening contributed less to productivity growth in the post-GFC period compared to the pre-GFC period in all regions except SSA. All regions experienced a weaker contribution from TFP— especially LAC and SSA, where TFP contracted after the GFC.

• Declining gains from sectoral reallocation. Productivity gains from the reallocation of labor between sectors faded in four regions (EAP, ECA, LAC, and SSA) during the post-GFC period. LAC and SSA were particularly affected. Within-sector productivity enhancements also slowed. Only one region, EAP, achieved withinsector productivity gains during the post-GFC period.

• Need for well-targeted policies to boost productivity growth. A well-targeted reform agenda is needed to reignite productivity growth, especially in light of the possible persistent effects of COVID-19 on productivity. In particular, policies are needed to address key obstacles common across multiple regions, such as lack of economic diversification, weak governance and institutions, widespread informality, shortcomings in education, and lack of integration through trade.

Slowing labor productivity growth across EMDE regions. Before the GFC, EMDEs experienced an exceptional and broad-based surge in productivity, with productivity growing faster than the advanced economy average in more than 50 percent of economies in all regions except MNA (figure 5.1; Rodrik 2011; Roy, Kessler and Subramanian 2016). In the period following the GFC (2013-18), productivity growth slowed from pre-GFC (2003-08) rates in all EMDE regions. The COVID-19 pandemic may lead to a significant further setback in productivity growth.

The post-GFC slowdown was particularly steep in ECA, and to a lesser degree in EAP and SSA. In these regions, investment growth declined sharply from pre-GFC levels amid financial system disruptions associated with the euro area debt crisis (affecting ECA), policy-guided public investment slowdown in China (EAP), and the commodity price collapse of 2014-16 (ECA and SSA). However, in all three regions, there were important exceptions to the sharp slowdown. In EAP, the slowdown was concentrated in China whereas productivity and investment growth continued to be robust in other major economies, such as the Philippines and Vietnam. In ECA, the slowdown was muted in agricultural economies in Central Asia that shifted their economic ties toward China and in Central European economies that continued to integrate into Western European supply chains and benefited from investment financed