growth. All measures of potential growth show a decline in global potential growth in the decade before the pandemic and that it was internationally widespread. Earlier studies documented the decline for only a subset of measures (for example, Chalaux and Guillemette 2019; Kilic Celik, Kose, and Ohnsorge 2020).

Third, this study is the first to systematically compare the long-term damage to potential growth of short-term economic disruptions—such as recessions, banking crises, and epidemics—in a large set of countries. Thus far, only a few studies have estimated the effects of recessions on potential output growth, and they were confined to an OECD sample and the production function approach (Furceri and Mourougane 2012; Mourougane 2017). This study broadens the earlier research by estimating the effects of recessions, banking crises, and epidemics in a large sample of advanced economies and EMDEs and for a wide range of potential growth measures.

Fourth, this study estimates empirically, using a set of local projection models, the multiple channels through which short-term economic disruptions have dampened potential growth. Specifically, it estimates the effects of disruptions on the growth of the labor supply, the growth of investment, and the growth of total factor productivity (TFP) in a consistent framework. Previous studies have typically examined overall effects on growth or effects through individual channels.

The theoretical literature has analyzed, typically using DSGE models, several mechanisms through which short-term output disruptions (associated with recessions and other adverse events) may have longer-term effects. Weak aggregate demand during such disruptions may reduce the expected profitability of, and thus discourage, productivityincreasing research and development (Fatás 2000). It may similarly discourage investment in productivity-raising new technologies that would otherwise have improved productivity (Anzoategui et al. 2019). Investors who expect weak aggregate demand to persist will be reluctant to invest; reduced investment will tend to lower asset prices which, through wealth effects, will further depress consumption (Caballero and Simsek 2017). If aggregate demand weakness is accompanied by a financial crisis, financial market frictions can restrict firms’ access to credit and start-up capital, further reducing investment and productivity growth.<sup>2</sup> Damage to potential output from short-term disruptions can also result from productivity losses due to resource misallocation (Dieppe, Kilic Celik, and Okou 2021; Furceri et al. 2021); these may be partially offset by productivity gains stemming from the exit of lowproductivity firms (Bloom et al. 2020). Finally, high unemployment that accompanies weak aggregate demand tends to lead to human capital losses and reduced job search activity among the long-term unemployed (Blanchard and Summers 1987; Lockwood 1991).

Empirical estimates have documented that some of these mechanisms were indeed at work during past recessions. An analysis of data for a large sample of countries during 19602018 found that financial crises, especially when accompanied by a rapid buildup of debt,

> 2 For details of these empirical findings involving financial markets, see Claessens and Kose (2017), Queralto (2013), and Wilms, Swank, and de Haan (2018).

3