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Recent turbulence has severely disrupted societies and economies globally. The COVID-19 pandemic required unprecedented government responses across policy areas to protect lives and livelihoods. And as the pandemic receded, Russia’s illegal war of aggression against Ukraine stressed energy and food markets, harming people everywhere and reducing growth.
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Recent years have been dominated by shocks that have profoundly changed societies and economies, from the outbreak of the COVID-19 pandemic to Russia’s war of aggression in Ukraine. Unprecedented policy responses have helped protect lives and livelihoods during this turmoil, but long-term and long-standing challenges remain to be addressed. Weak productivity growth and declining business dynamism remain prevalent in many OECD countries. Structural problems in labour markets still prevail and skill mismatches continue to hinder effective resource utilisation. Moreover, while its urgency is widely recognised, environmental sustainability has often remained absent from most growth strategies.
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The Chapter advises on country-specific structural policy priorities to strengthen growth fundamentals and pave the way for successful green and digital transitions. Four key policy areas are identified: enhancing the design of social support programs; lifting potential growth by removing obstacles to effective resource utilisation; securing faster progress towards decarbonization; making digital transformation a driver of productivity growth. Country specific information supporting this chapter is available in the country notes (Chapter 3).
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The chapter reviews selected implications of trade integration via global value chains (GVC) and identifies gaps in understanding of GVC risks. Despite recent significant progress, many GVC risks remain unknown. The chapter also discusses pros and cons of possible strategies to minimise GVC risks and specific measures that are debated in the literature. None of the proposed strategies is a silver bullet and best measures are likely to vary across products and sectors. Most actions to improve resilience lie with firms rather than governments. There is less controversy about governments taking a more proactive role in co‑ordinating data collection, analysing GVC risks and collaborating with private firms to promote standards of conduct. In contrast, there is less agreement about governments using financial incentives, regulatory requirements and direct government control to reshape GVCs. Government intervention risks creating costly distortions without minimising economic volatility and improving national security, and making international co‑operation.
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