Economic growth prospects are under pressure around the world, due to both short-term uncertainty linked to geopolitical tensions and the longer-term challenges of low productivity growth, weak business investment and dynamism, skills shortages and population ageing. There is an urgent need to revive reform momentum, taking action to reignite the structural drivers of growth and ensure that economies remain competitive and resilient in a rapidly transforming global landscape, according to a new OECD report.
The first edition of Foundations for Growth and Competitiveness, released today in Paris, provides an evidence-based tool for countries to implement productivity-enhancing structural reforms.
The new OECD initiative identifies three broad structural reform priority areas: enabling factors, including human capital, governance, infrastructure and macroeconomic policy; market incentives and allocative efficiency, spanning taxation, product and labour market regulations, trade and foreign direct investment; and targeted and sectoral measures that involve innovation and energy security support.
Foundations for Growth and Competitiveness provides evidence on performance across these areas for 48 countries, building on a comprehensive new indicator database – a common OECD repository on the structural policy settings conducive to growth. Individual country notes provide insights for policymakers and stakeholders on where their countries stand, contribute to identifying the key bottlenecks to growth, and will help design reform packages that are coherent, evidence-based and tailored to country circumstances.
“Reversing three decades of a declining economic growth trajectory is essential to securing and sustaining meaningful gains in household incomes and living standards,” OECD Secretary-General Mathias Cormann said. “The priorities are clear: improve the business environment, drive innovation, and invest in skills and employment. Getting this right will unlock stronger growth and competitiveness, cushion the fiscal pressures of ageing populations and position countries to harness the full potential of AI and other transformative technologies.”
Pro-growth structural reforms work best when they are comprehensive and reinforce related policy areas. This includes providing strong enabling conditions, including high-quality human capital, sound institutions, effective governance, reliable infrastructure and macroeconomic stability.
As digitalisation and AI reshape production and work, responding to rapidly evolving skills demand is important to harness the potential of these technologies. One of the main barriers to productive adoption of AI is the lack of workers with adequate skills. OECD analysis suggests that AI could raise annual labour productivity growth across OECD countries by between 0.7 and 1.2 percentage points per year over the next decade, depending on the speed of adoption. The skills agenda should focus on adapting curricula of academic and vocational education, expanding access to lifelong learning, and deepening links between universities and labour markets.
Markets must function efficiently to ensure that labour and capital are allocated to their most productive uses. Addressing excessive barriers to firm entry and the post-entry growth of successful firms, restrictive product market regulations and inefficient insolvency regimes would boost firm dynamism and speed up the reallocation of capital and labour.
To enhance labour mobility and employment, and to address the economic, social and fiscal impacts of population ageing, reducing barriers to participation – particularly for women, older workers and other underrepresented groups –, strengthening incentives to work more hours and expanding access to affordable childcare are key. Housing policies that facilitate mobility and tax systems that broaden the base while limiting distortions can further enhance allocative efficiency.
With the right settings in place, governments can more successfully implement economic strategies. Innovation policy, energy security and the green energy transition are areas where well-designed, targeted interventions can address market failures and align growth with long-term societal objectives. Public support for research and development, when combined with strong human capital and competitive markets, can amplify productivity gains. Energy market reforms that reduce entry barriers and encourage investment in renewables and efficiency strengthen both resilience and competitiveness.
“This is not a call for deregulation for its own sake,” OECD Chief Economist Stefano Scarpetta said. “The objective of regulatory reforms should be to ensure that competition, openness and mobility allow innovation and entrepreneurship to flourish. The digital transformation and AI offer new opportunities, but realising their full potential requires coherent, evidence-based and well-sequenced reforms. Countries can revitalise productivity growth, enhance competitiveness and secure rising living standards for future generations.”
Go here for further information on the Foundations for Growth and Competitiveness initiative, including detailed Country Notes and the new database (this link can be used in media articles).
Media queries should be directed to Lawrence Speer in the OECD Media Office (+33 1 45 24 97 00).
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