Human 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. These indicators are meticulously tracked by economists and policymakers, and have been the cornerstone of effective decision-making for decades.

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. This is institutional quality, and it consistently stands out, especially among the overall global productivity potential “winners.” This finding demonstrates the importance of effective governance structures for thriving entrepreneurship and innovation ecosystems, and in ensuring efficient allocation and use of natural, human, and intellectual capital.

Physical 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 to their productivity potential. The region is a clear example of how targeted policies and investments in manufacturing, logistics and internet infrastructure can drive fast economic growth across sectors.

Taking full advantage of world-class physical capital will require supporting initiatives which can enhance the role of public institutions and improve social cohesion. High levels of social and institutional trust improve cooperation, reduce transaction costs, and foster innovation, all of which are vital for higher productivity.

Productivity is closely tied to innovation, not just in advanced economies but in upper- and lower-middle-income countries, too. We expect this global shift towards knowledge-driven growth to continue. Developing 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. In particular, scientific research output per capita added on average US$6.10 per hour worked across our global sample. 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.

Environmental factors, though not yet dominant contributors to productivity, are increasingly critical to fostering sustainable economic growth. Our analysis highlights that the importance of natural capital—another newly added productivity pillar in our framework—is well-evidenced, with the top five countries in our PPI ranking adding more than US$20 per hour worked through natural capital indicators.

Air pollution and water stress show varying impacts on productivity across regions. In countries including Russia and South Africa, air quality supports productivity growth, while in Oman and the UAE, air quality hinders potential productivity. Similarly, 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 potential productivity is not held back.

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. Despite the importance of trust, data points related to the breadth and quality of social relationships are often overlooked in economic policymaking.

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. Societies with higher levels of trust among citizens report greater well-being, too. Trust creates an additional layer of support beyond government interventions for the sick and less able, and helps reduce chronic stress associated with more hostile social environments.