role of poorly-measured intangible capital, such as design, research and developments, marketing and training (Corrado and Hulten 2010; Ollivaud, Guillemette, and Turner 2016).

Cyclical factors, although transitory in themselves, can have long-lasting effects on potential output growth. More than half of EMDEs in the sample suffered at least one year of investment contraction during 2013-17. In some, investment contractions were triggered by the prolonged slump of commodity prices from their peak in early 2011. In others, it was accompanied by heightened domestic political or geopolitical tensions. Such episodes typically foreshadow weaker potential growth in the three years surrounding the trough of the investment contraction.

# 3.3. Labor supply

Growing working-age populations have been associated with “demographic dividends” to growth. Higher working-age shares of populations have been accompanied by higher capital accumulation and employment (Bloom and Canning 2004; IMF 2004; Figure 7).<sup>11</sup> Shifts towards an older age structure of the population affect potential output in several ways. Population aging may reduce the working-age population, which directly reduces potential labor supply. There are also less direct effects of population aging. For example, aging increases the share of the population with below-average labor force participation rates. Aging populations have been associated with slower labor productivity growth for various industries and occupations (Maestas, Mullen, and Powell 2016).

Another important driver of increased labor supply can be labor force participation among less represented groups, including women, young, and old workers. Rising female labor force participation rates have been attributed to better educational attainment (opening access to higher-earning jobs), lower fertility rates, a technology-driven shift toward nonmanual skills, and cheaper home production (lowering the opportunity cost of working).<sup>12</sup> Meanwhile, population aging has contributed to a decline in labor force participation, which tends to be lower among older workers (Maestas, Mullen, and Powell 2016).

In the past five decades, growth was supported by rapidly growing working-age populations—until the mid-1980s in advanced economies and around 2010 in EMDEs (Figure 7). Since 2000, countries with rising working-age population shares accounted for half of global output growth and three-quarters of global GDP levels. With the retirement of the baby boom generation and lower fertility rates, demographic trends have turned less favorable to growth and will continue to do so over the next decade (Kose and Ohnsorge 2019). In advanced economies, the working-age share of the population is set to

> 11 The benefits from a rising working-age population have been particularly pronounced in Asia (Bloom et al. 2010; Bloom et al. 2007; Aiyar and Mody 2011). Demographic change over the period 1960-1995 for 86 countries has been estimated to have accounted for approximately 20 percent of per capita output growth, and more in Asia and Europe (Kelly and Schmidt 2005). Cruz and Ahmed (2016) estimated that a 1-percentage-point increase in the working-age population share was associated with a more-than-proportional increase in GDP per capita growth in 160 countries over 1960-2010. Other studies of the relationship between demographics and growth include Higgins and Williamson (1997); Eastwood and Lipton (2011); and Kelley and Schmidt (1995 and 2007).

> 12 These factors have been explored in Mincer (1962); Goldin (1994); Hill (1983); Killingsworth and Heckman (1986); and Connelly (1992).

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