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services could accelerate the convergence of EAP to the productivity frontier. Clarification of land ownership rights and transferable social benefits could encourage such labor movement (Fuglie et al. 2020). Urban planning can encourage a reallocation of labor toward more productive sectors by improving access to jobs, affordable housing, public transportation, health care, education, and other services (World Bank 2015a). Urban planning can also reduce road congestion, which is a major problem in many large cities, and may discourage job switching (World Bank 2018f, 2019a). Accelerated productivity growth will also require improved management of country and regional transportation, telecommunications, and utility infrastructure in urban areas.

Creating a growth-friendly environment Safeguard macroeconomic stability. In the long term, strong and sustained productivity gains require financial stability. Elevated corporate debt, especially in China, weighs on investment and productivity in exposed corporations. Policy measures to rein in financial risks are therefore critical. The region will need to strengthen its resilience to future unexpected shocks, including pandemic preparedness (World Bank 2020a).

Before the COVID-19 pandemic, productivity growth in ECA suffered the steepest decline of any EMDE region following the GFC, falling to an average of 1.7 percent in 2013-18, from 5.3 percent during 2003-08. There was wide heterogeneity within the region, however, with productivity growth below zero over 2013-18 in the Western Balkans and above 2.5 percent in Central Europe. The productivity slowdown in ECA predominantly reflected weaker within-sector productivity growth and weaker TFP growth in Eastern Europe, the South Caucasus, and the Western Balkans. Weakness in private investment and schooling disruptions at all levels during the pandemic will likely further weigh on productivity. The policy response to COVID-19 can be complemented with a comprehensive reform agenda to boost investment in physical and human capital, address continuing demographic pressures, and raise innovation. Reforms are also needed to improve business climates and governance, reduce the role of the state in the economy, and promote the diversification of commoditydependent economies.

Evolution of regional productivity

Sharp post-GFC productivity growth slowdown. Before the COVID-19 pandemic, productivity growth in ECA fell from a pre-GFC (2003-08) rate of 5.3 percent, above the EMDE average, to a below-average post-GFC (2013-18) rate of 1.7 percent—the steepest decline of any EMDE region (figure 5.9).

7 This slowdown was broad-based

7 Productivity data are available for 23 ECA economies. Central Europe includes Bulgaria, Croatia, Hungary, Poland, and Romania. Western Balkans includes Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia. Eastern Europe includes Belarus, Moldova, Russia, and Ukraine. South Caucasus includes Armenia, Azerbaijan, and Georgia. Central Asia includes Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. Kosovo, Turkmenistan, and Uzbekistan are excluded in some of the analysis because of limited data availability.