Overview

The anemic post-crisis growth in advanced economies continues even as many countries are more than half a decade into their recoveries. But these disappointing results are part of a decades-long decline in output and productivity growth that has deeper roots. This paper examines the drivers of the long-run and recent declines in growth at the sectoral level, documenting that labor is moving from high- to low-productivity sectors and from high to low growth sectors, and that policy distortions are causing wasteful allocations in protected sectors especially agriculture and personal services. This paper diagnoses these factors on a country-by-country basis and makes policy recommendations tailored to country circumstances. Product market reforms and a focus on lowering barriers to entry in high-markup sectors for countries further from the technology frontier, and greater ICT investment, R&D spending, and human capital promotion in economies at the technology frontier generating positive spillovers. The paper also assesses tradeoffs between short term costs and long term benefits of politically difficult reforms.