Estimating Potential Growth in the Middle East and Central Asia

The Middle East and Central Asia's economic growth potential is slowing faster than inother emerging and developing regions, dampening hopes for reducing persistentunemployment and improving the region's generally low living standards. Why? And is itpossible to alter this course? This paper addresses these questions by estimating potentialgrowth, examining its supply-side drivers, and assessing which of them could be mosteffective in raising potential growth. The analysis reveals that the region's potentialgrowth is expected to slow by ¾ of a percentage point more than the EMDC average overthe next five years. The reasons behind this slowdown differ across the region. Lowerproductivity growth drives the slowdown in the Caucasus and Central Asia and is alsoweighing on growth across the Middle East (MENAP); while a lower labor contribution topotential growth is the main driver in MENAP. Moving forward, given some naturalconstraints on labor, total factor productivity growth is key to unlocking the region'shigher growth potential. For oil importers, raising physical capital accumulation throughgreater investment will also play an important role.