Role of human capital accumulation in driving potential growth . To improve estimates of potential growth based on the production function approach, broader measures of human capital could be constructed, using information beyond the education enrollment and completion metrics and life expectancy data used in this study. The COVID-19 pandemic demonstrated the critical importance of a broader measures of human capital that takes into account such factors as morbidity and the quality of schooling (Angrist et al. 2021; World Bank 2018). The World Bank’s Human Capital Index offers one such measure but is thus far available only for very few countries and years (World Bank 2021). In addition, there is some evidence that increased human capital is more growth-enhancing in the presence of better institutions (Ali, Egbetokun, and Memon 2018). Future specifications could take into account such interaction effects.<sup>14</sup> Effects of climate change-related weather events on potential growth. There is growing evidence that climate change-related weather events are causing increasingly frequent and severe damage to output and that they have consequences for potential growth. Some of these are associated with increased migration (Missirian and Schlenker 2017); shorter working hours in industries with widespread outdoor labor due to excessive heat (ILO 2019); falls in total factor productivity (Economides and Xepapadeas 2018); and increased economic volatility (Panton 2020). Overall, climate change has been shown to be associated with significant output losses (Cantelmo, Melina, and Papageorgiou 2019; Colacito, Hoffman, and Phan 2018; Kahn et al. 2019). Conversely, increased investment designed either to increase resilience to adverse climate events or to mitigate climate change could provide a boost to potential growth (IMF 2019). Some of these diverging forces are explored in Kilic Celik et al. (2023). In any event, it will be essential to analyze the implications of climate change for potential growth.

Role of natural resources in the measurement of potential growth. Particularly for countries that rely heavily on natural resources, production function-based estimates of potential growth could be improved by taking into account natural resources as a factor of production whose depletion can reduce potential growth. In addition, research could take into account the adverse implications of natural resources for other factors of production and productivity. For example, natural resources affect the growth benefits of foreign direct investment (Hayat 2018) and of aggregate investment (Gylfason and Zoega 2006). They can also have reduce productivity through rent-seeking behavior (Torvik 2002) and sectoral shifts (Stokke 2008).

Implications of emerging trends in drivers of growth. Measures of TFP based on the production function approach could be refined to capture new developments. For example, the energy transition could generate large sectoral shifts, with consequences for TFP growth, and major investments (IMF 2021). The broadening use of digital technologies, the shift from trade in goods to trade in equipment services (“servitization”), and shifts in global value chains could change the patterns of cross-country technology transfers and hence affect productivity growth and foreign direct investment flows. Servitization and digitalization have been associated with productivity gains in the affected firms and

> 14 Loayza and Pennings (2022) have developed tools to model long-term growth. These include applications such as <mark>how public investment affects growth, the determinants of TFP, and the evolution of growth in resource-rich economies.</mark>

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