markets. In contrast to earlier studies, the discussion of policy options to lift potential growth is directly derived from the empirical exercise.<sup>4</sup> The paper’s principal conclusions are as follows. First, the global financial crisis has ushered in a period of persistently weak potential growth. During 2013-17, global potential growth (2.5 percent a year) fell 0.5 percentage point below its longer-term (1998-2017) average, and even further below its average a decade ago (2003-07). Potential output decelerated in advanced economies to 1.4 percent a year during 2013-17, which is 0.5 percentage point below its long-term average. Similarly, EMDE potential growth slowed to 4.8 percent a year, 0.6 percentage point below its longer-term average. This weakness in potential growth has been broad-based, affecting almost half of EMDEs and 87 percent of advanced economies in the sample, together representing 69 percent of global GDP.

Second, a host of factors have contributed to this post-crisis shortfall in potential growth below longer-term averages. Half of the deceleration reflects weaker-than-average rates of capital accumulation. Just over one-quarter of the slowdown is due to weaker total factor productivity (TFP) growth while just under one-quarter of the moderation is attributable to demographic trends.

Third, the slowdown in potential growth may extend into the next decade. Trends in its fundamental drivers suggest that global potential growth may slow further by 0.2 percentage point on average over 2018-27. While the decline in potential growth is expected be 0.1 percentage point a year in advanced economies, EMDE potential growth could ease much more, by 0.5 percentage point. The projected slowdown from 2013-17 would affect EMDEs and advanced economies that account for 73 percent of global GDP.

Fourth, policies could help reverse these trends and boost global growth. For advanced economies, labor market reforms (especially targeting pension systems) may have the highest potential to stem the decline in potential growth. Among EMDEs, in particular, education, health, and labor market reforms could significantly increase potential growth. A combination of these policies could lift potential growth in EMDEs over the next decade by 0.8percentage point, and more in EAP and ECA.

To sustain higher potential growth, countries need to reform labor and product markets, strengthen human and physical capital and build conducive environments for business and households to invest. The onus is particularly on the largest emerging markets and advanced economies, whose growth momentum generates spillovers for other EMDEs.

This paper draws on a comprehensive database that estimates potential growth using all standard approaches for up to 181 countries for 1980-2017 (extending to 2027 for 80 countries) based on Kilic Celik et al. (forthcoming). For clarity, the remainder of the paper presents only results using a production function approach for 30 advanced economies and 50 emerging market and developing economies for 1998-2027 that together

> 4 Other studies have investigated the link between actual growth or productivity growth and structural reforms, focusing on the near-term benefits (Prati, Onorato, and Papageorgiou 2013), productivity effects (Dabla-Norris, Ho, and Kyobe 2015; Adler et al. 2017) or a sample consisting of mostly advanced economies (Banerji et al. 2017; IMF 2015 and 2016b).

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