reforms are stronger than historical improvements in the region, which are modest by comparison with the average EMDE, the gains could be substantially greater. Thus, if female labor force participation were raised to the EMDE average gradually over 202230—from 21 to 53 percent—potential growth would be raised by 1.2 percentage points a year. While this would be a major spike in female labor force participation, the recent increases in Saudi Arabia, from 20 percent in 2017 to 35 percent in 2021, show that sizable increases are possible over the course of a few years. Furthermore, if the region were to boost investment in climate change adaption and mitigation by 1.2 percent of GDP per year, potential growth could be raised by an additional 0.1 percentage point a year.

The region’s potential growth could also be raised significantly by improving governance. Weak governance in the region has been found to crowd out private investment and discourage private-sector growth (Benhassine et al. 2009; Nabli 2007). Improved governance in the education sector, such as more structured measurement of results in training and educational programs, would enhance the matching of skills across workers and employers and could provide more, better-quality jobs in the private sector (Gatti et al. 2013). Weak governance is also reflected in perceptions of widespread corruption, which is a highly cited constraint on business activity in MNA in the World Bank’s Enterprise Surveys. Corruption tends to discourage interactions between private firms and public authorities, and more corruption is associated with lower employment and productivity (EBRD, EIB and World Bank 2016). Strengthening legal frameworks, including areas like corporate governance and bankruptcy resolution, can alleviate constraints on legitimate market transactions.

Economies in the region remain heavily reliant on the production and export of primary commodities. The diversification of agriculture-dependent economies (Morocco) and oildependent economies (GCC economies, the Islamic Republic of Iran, Iraq) remains a top priority to increase economic stability and boost potential growth. Among the oilexporting economies, oil revenue still accounted for about one-third of output, two-thirds of merchandise exports, and three-quarters of government revenue in 2019. With the world transitioning away from fossil fuels, the oil intensity of global output declined by about one-third in the two decades to 2019, and this trend will likely continue. Policies to promote diversification include measures to increase competition in product markets and avoid market concentration; measures that support the reallocation of economic resources to new activities; measures to lower trade costs and improve infrastructure and logistics; the rationalization and reduction of energy subsidies; and the liberalization of service trade and foreign direct investment (Dieppe 2021; Kose and Ohnsorge 2020).

Armed conflict poses significant threats to the lives and livelihoods of people, and they destroy human and physical capital. Breaking cycles of conflict can substantially improve growth prospects in fragile states. Close to half of conflicts globally, and one-third in MNA, are recurrences of past conflicts often over similar issues (Jarland et al. 2020). Countries where there is conflict have some of the widest gender gaps in education, labor force participation, and political participation. In the region’s fragile economies, the reconstruction investment needed to maintain adequate provision of health, education,