losses among people who are already disadvantaged. This could weaken potential growth, especially if large segments of the population are left behind.

There are also some upside risks to the projections. For countries neighboring Ukraine, the migration resulting from Russia’s invasion could alleviate labor supply constraints. Some of Ukraine’s neighbors in ECA, particularly Poland and Romania, have taken in large numbers of Ukrainian refugees. Unlike some previous migration waves, however, roughly half of these migrants are children, and the share over the age of 64 years is also relatively high (UNHCR 2022). The inflows of Ukrainian refugees could boost the labor supply by around 1 million in Poland and over 60,000 in Romania, implying increases in potential output growth of 0.4 and 0.1 percentage point a year, respectively, unless or until the migrants return (IMF 2022a; Strzelecki, Growiec, and Wyszy ń ski 2020; World Bank 2022i). The integration of these new workers is being supported by the EU’s recently announced measures to provide services to forcibly displaced persons. The possible increase to potential growth could be even higher, since Ukrainian migrants, on average, have more years of schooling than the native populations in these receiving countries.

# 6.4. Policy options to lift potential growth in ECA

ECA faces formidable challenges in seeking to achieve convergence of living standards with the EU, particularly given the prospect of weakened potential output growth in the years ahead (Dieppe 2021). However, potential growth could be meaningfully lifted by reforms that fill the region’s remaining investment needs, including climate adaption and resilience; bolster human capital to address the pandemic’s negative effects and deteriorating education outcomes; and mitigate demographic headwinds. Investment could be boosted, and potential growth further lifted, by reforms that address ECA’s structural shortcomings related to the quality of governance and institutions, private sector development, and increased investment in R&D and the digital transition.

In a scenario in which the largest ten-year increases on record in each country in investment growth, education outcomes, life expectancy, and elderly and female labor force participation are assumed to be repeated, it is estimated that potential output growth could pick up from the baseline rate of 3.0 percent a year to 3.8 percent a year in 2022-30—faster than the 3.5 percent annual pace of 2011-21 (figure 10.A). Higher investment is expected to contribute three-quarters of the 0.8 percentage-point boost to annual potential growth. Social benefit reforms (assumed to raise labor force participation) account for another quarter. The remainder results from labor market reforms (also assumed to raise labor force participation) and education and health improvements. In a separate scenario in which investment is increased to tackle climate change, potential growth over 2022-30 would rise by 0.4 percentage point a year over the baseline, to 3.4 percent—only slightly lower than the average pace of 2011-21 (figure 10.B).

Private investment and innovation are encouraged by strong institutions and conducive business climates, a strong rule of law with secure and enforceable property rights and minimal expropriation risk, a stable and confidence-inspiring policy environment, and low