Countries in Europe and Central Asia (ECA) need to make more efficient use of existing economic assets and invest in the capabilities of firms and workers to accelerate growth, according to the World Bank report TIDES of Change: Igniting Productivity Growth in Europe and Central Asia. The report emphasizes that simply adding more capital and labor is not enough to boost economic growth; productivity—the efficiency with which capital and labor are used—is equally critical. A 10% increase in productivity could generate nearly 2 million new jobs in the region, highlighting the strong connection between productivity improvements and employment growth.
The report notes that the region’s post-global financial crisis slowdown was largely driven by declining productivity, exacerbated by persistent market distortions such as the high presence of less efficient state-owned enterprises, weak firm capabilities, and incomplete integration into global markets. These factors limit returns on capital investments and restrict countries’ growth potential. Enhancing productivity, however, can increase welfare, create jobs, and raise wages. Had post-2008 productivity growth matched pre-crisis levels, the region’s GDP could be approximately 62% higher today.
Export-oriented firms in ECA, although a minority, are the most productive and contribute disproportionately to jobs, investment, and value creation. Yet, the region trades about 45% less than its potential, indicating substantial untapped opportunities for trade integration and foreign direct investment. The current global shift toward resilient, nearshoring value chains presents an additional opportunity, which ECA countries can exploit by reforming the business environment and strengthening domestic firms’ capabilities to engage with multinational companies.
The report calls for renewed reform momentum focused on trade, investment, digitalization, efficiency, and skills—collectively referred to as TIDES. Strong competition, access to technology and finance, open trade and investment, and a skilled workforce are key drivers of productivity. Firms that operate efficiently in this environment grow faster, employ more workers, and contribute to higher incomes and broader economic dynamism.
Using a harmonized dataset of over 40 million firm-level observations across 16 countries from 2008 to 2023, the report provides new insights into productivity trends, bottlenecks, and opportunities in ECA. It underscores the need for governments to integrate productivity into national plans and budgets, promote market competition, ensure transparency in public procurement, and track reform progress. With committed policies and coordinated efforts from policymakers, business leaders, and partners, countries in ECA can revitalize productivity growth, generate more and better jobs, and transform their economic trajectory.
