and the growth of human and physical capital.<sup>3</sup> Since data for many EMDEs before 1998 are inadequate for application of the production function approach, the sample period begins in 2000.

Climate change and potential growth. This study analyzes the possible impacts of climate disasters, which are expected to become more frequent because of climate change. It also examines the possible effects on potential growth of investment to alleviate the effects of climate change. Several studies—reviewed in Shabnam (2014), Klomp and Valckx (2014), and Botzen, Deschenes, and Sanders (2019)—have found mixed evidence for both shortterm and long-term impacts of natural disasters on incomes and output growth, with possibly larger and more lasting impacts in low-income countries (LICs). Broadly consistent with this literature, our study documents small, but statistically significant, damage to short-term growth, which dissipates quickly. The study goes on to estimate the impact on potential growth of investment to mitigate or reduce the damage from climate change, drawing on the estimated investment needs presented in Stamm and Vorisek (2023).

Policies to promote potential growth. This study explores, in a consistent framework, policy options to lift potential output growth. A large literature has considered the impact of different policies and institutional settings on growth, including human capital improvements (World Bank 2018b), governance improvements (World Bank 2017a), trade and global value chain integration (World Bank 2020b), new technologies (World Bank 2016; 2019b), and labor market changes (World Bank 2013). In contrast to these and other earlier studies, the discussion of growth-enhancing policy options in this study is directly derived from the empirical framework provided by the production function approach, which is used to link policy options to their impacts on growth prospects.<sup>4</sup> Our study presents several findings.

Weaker potential growth prospects. The slowdown in potential growth in the past two decades, described in Kilic Celik et al. (2023), is projected in the baseline to extend into the remainder of this decade. Trends in the fundamental drivers of growth suggest that global potential output growth will slow further, by 0.4 percentage point a year on average, to 2.2 percent a year during 2022-30. Just under half of this slowdown is due to demographic factors, including slowing working-age population growth and declining labor 3 Much of the previous literature has focused on examining past trends but not prospects (ADB 2016; Dabla-Norris et al. 2015; IMF 2015a; OECD 2014). For European and OECD countries, respectively, the European Commission and the OECD have prepared long-term growth forecasts based on production function approaches (European Commission 2021; OECD 2014). For individual EMDEs or EMDE regions, the World Bank has estimated potential growth prospects (World Bank 2022, World Bank 2021a, World Bank 2021b, World Bank 2020a, World Bank 2018a, World Bank 2019a). Other studies have used a statistical approach to assess long-term growth prospects for a handful of countries (Modis 2013).

4 Several studies have investigated the link between the growth of output or productivity and structural reforms, focusing on the near-term benefits (Prati, Onorato, and Papageorgiou 2013) or productivity effects (Adler et al. 2017; Dabla-Norris, Ho, and Kyobe 2015). In some such studies, the sample has consisted mostly of advanced economies (Banerji et al. 2017; IMF 2015a, 2016b; de Haan and Wiese 2022).