style neoclassical growth model, though can be extended in a range of directions depending on the country and context. We use the LTGM Natural Resource Extension (LTGM-NR, Loayza et al. 2022) as our core model, as Peru is a resource-rich country. The LTGM-NR augments the standard neoclassical growth model with a natural resource sector and government fiscal policy that determines how resource revenues are spent. This modeling approach provides a more accurate analysis than the main LTGM for resource-rich economies, as it accounts for heterogeneity across the resource and non-resource sectors (Appendix A1). We also use the LTGM-TFP extension (Kim and Loayza 2019) and the LTGM-Human capital extension to model Total Factor Productivity (TFP) growth and human capital growth, respectively.<sup>3</sup> We first model Peru’s business-as-usual growth path, where the growth drivers – the investment-to-GDP ratios, TFP, human capital, and labor force participation rates – follow their historical or recent trends.<sup>4</sup> We find that potential GDP growth in Peru is likely to fall from around 2.1 percent in 2024 to around 1.4 percent in 2050, driven mostly by demographic factors, but with a secondary contribution from declining human capital growth (as the workforce is already better educated). As growth slows it takes even longer to reach HI status in the baseline—almost 65 years.

Next, we assess the extent to which domestic reforms to improve the investment rate, human capital and TFP growth can accelerate GDP growth. Specifically, we simulate moderate and ambitious shocks to the factors of production with targets based on the distribution of those growth fundamentals among HI countries. Ambitious reforms generate growth that averages 4.3 percent in the 2024-2050 period, compared to the 1.9 percent average in the business-as-usual baseline.<sup>5</sup> We also simulate the long-term growth under a global “green transition” scenario where the increased demand for copper, if the world achieves Net Zero Emissions (NZE), results in higher copper prices, higher copper investment, and greater exploration. The estimated GDP growth is roughly one percentage point higher compared to the baseline, which would help Peru considerably in achieving its growth targets. The combined scenario of the global green transition and ambitious domestic reforms accelerates Peru’s GDP growth significantly and the country reaches the target of HI status by 2042.

The rest of the paper is organized as follows. Section 2 presents past growth dynamics. Section 3 discusses the assumptions used in the baseline simulation, presents the baseline growth path to 2050 and the contribution of each growth driver to the slowing growth rate. Section 4 presents the combined impact on GDP growth due to reforms on each growth determinant. It shows Peru’s standing in comparison to structural and regional peers on five separate TFP determinants and quantifies the impact from converging to frontier countries on TFP growth. Section 5 presents the global green transition scenario, which analyses the effects of higher copper prices that would result from global NZE, a shock to the copper sector TFP, higher investment, and long-term production. It then combines the domestic reform and the global green transition scenario to quantify the combined impact of GDP growth. The conclusion provides a summary of the main findings and policy implications.

> 3 The LTGM-HC tracks the years of schooling and the quality of education and health across age cohorts to determine the human capital of the workforce. In the LTGM-TFP, the TFP growth rate is calculated as the compositive effect of TFP determinants: innovation, education, market efficiency, infrastructure, and institutions. See the Appendix for details.

> 4 Future demographic projections are taken from the United Nations (UN).

> 5 Ambitious reform is the mix of shocks to the investment rate, human capital and TFP which are detailed in section 4.

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