Productivity is a key indicator of a country’s economic health. How effectively each nation allocates and uses its resources determines its growth trajectory and competitiveness, thus supporting the development of prosperous, equitable, and healthy societies. Amid an ongoing global slowdown in productivity gains, governments around the world are seeking innovative approaches in order to generate the next wave of economic progress.
Strategy&’s Productivity Potential Index (PPI), compiled by the Ideation Center, is inspired by this forward-looking perspective, using the latest multidisciplinary thought leadership, applied expertise in driving regional transformation programs, and advanced predictive analytics capabilities to construct a definition of productivity fit for the new era. By introducing institutions, social capital, and natural capital to the traditional inputs of human capital, physical capital, and intangible capital and innovation, the PPI offers an enhanced framework that brings together 19 indicators, tested and calibrated for accuracy and impact through a robust process involving machine-learning models.
Key insights: Unveiling the drivers of future productivity
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Institutional quality enters the top three indicators of productivity potential globallyHuman capital per capita and physical capital per capita are the foundations of productivity, accounting for a significant portion of a country’s economic growth potential and holding the top two positions in almost all countries across our sample. However, our PPI analysis shows that the third most significant determinant of a nation’s productivity potential has yet to receive the same level of attention: institutional quality. This demonstrates the importance of effective governance structures for thriving entrepreneurship and innovation ecosystems.
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GCC countries excel across physical capital indicators, but lag in social capital and institutional qualityPhysical capital indicators emphasize how adequate infrastructure can help countries tap into other determinants of high productivity. Within our sample, four GCC countries (Bahrain, Saudi Arabia, Qatar, and the UAE) are in the global top 10 for physical capital, adding US$22-24 per hour worked. Taking full advantage of world-class physical capital will require supporting initiatives which can enhance the role of public institutions and improve social cohesion.
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Investment in scientific research pays off—it could contribute more than US$10 per hour worked to the productivity potentialDeveloping and retaining future talent in STEM subjects will become an increasingly important part of policymakers’ agendas, and for good reason. Our analysis indicates that two of the PPI indicators in innovation and intangible capital—the number of science journal articles published and patent applications approved—have a large effect on the overall productivity potential score. For the highest-performing countries, such as Denmark, Luxembourg, Norway, and the United States, the contribution of scientific research accounted for more than US$10 per hour worked.
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Environmental stressors are beginning to shape the productivity potentialEnvironmental factors are increasingly critical to fostering sustainable economic growth. For example, water stress poses challenges in countries such as Argentina, Brazil, and Chile, as well as in resource-scarce nations including Kuwait, Oman, and Saudi Arabia. Proactive measures designed to reduce air pollution and manage water resources efficiently could address these challenges and unlock additional productivity gains. Forward-looking policies that mitigate the adverse effects of climate change will also be critical to ensuring that potential productivity is not held back.
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G20 countries are reaping the benefits of social capitalThe quality of social relationships is often overlooked in economic policymaking. However, evidence reveals that high levels of social trust promote equity and inclusion, reduce transaction costs, and make it easier to collaborate with diverse stakeholders, resulting in more efficient knowledge sharing. Trust, the cornerstone of social capital, ranks as the eighth most influential factor in productivity potential among G20 economies, contributing an average of US$2.37 per hour worked.
The Strategy& productivity potential index
Policy implications outline strategies for sustainable growth
The findings of the Productivity Potential Index (PPI) reinforce the need for a broader, forward-looking approach to economic growth. By integrating traditional drivers like human and physical capital with emerging factors such as institutional quality, social cohesion, and natural capital, the PPI provides a more comprehensive roadmap for unlocking productivity gains. If countries address their weakest indicators in line with best-performing peers, the potential economic uplift could reach $87 trillion over the next decade. As governments, businesses, and policymakers navigate an evolving global landscape, the PPI serves as a vital tool to drive sustainable, inclusive, and innovation-led prosperity.
English report
The next wave of growth: How to unlock $87 trillion in global productivity gains
Arabic report
التحول الاقتصادي المقبل: تحقيق 87 تريليون دولار مكاسب إنتاجية عالمية
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