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Determinants of productivity in Morocco – the role of trade? Michael Gasiorek Patricia Augier Gonzalo Varela Part of a DFID funded study entitled: Analysis of the Effective Economic Impact of Tariff Dismantling (under the Euro-Med Association Agreements). Background.

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Determinants of productivity in Morocco – the role of trade?Michael GasiorekPatricia AugierGonzalo VarelaPart of a DFID funded study entitled:Analysis of the Effective Economic Impact of Tariff Dismantling (under the Euro-Med Association Agreements)

  • In the long run a key determining factor of GDP, and growth of GDP, is productivity and productivity growth.
  • Well-established literature on relationship between trade / openness & economic growth (eg.Winters, AER, 2004).
    • Most tend to accept that openness leads to higher growth rates... but clearly the “environment” in which this occurs matters.
  • Much smaller literature on what are the mechanisms driving (these) change in aggregate productivity?
  • These changes in aggregate productivity will be driven by changes in productivity at the level of the firm
  • More recently, work has started to use firm-level data sets in order to address such questions (Griliches & Regev, Tybout, Barnard, Levinsohn & Petrin….).
    • Aim of this work is to capture heterogeneity at the firm level and to understand:
      • the sources of productivity growth across time
      • the sources of productivity differences across firms
decomposing tfp growth
Decomposing TFP growth
  • Possible sources of growth in total factor productivity:
    • inter-industry reallocation of resources to more productive sectors according to shifts in comparative advantage
    • Within industry compositional shifts
      • More productive firms increasing their share of the market
      • Entry and exit of firms
    • Existing firm becoming more productive:
      • efficiency gains from economies of scale (could be internal & external, though the focus is typically on internal)
      • Technical progress (ie shifts in the production function);
        • R&D, technological spillovers, improved quality of (imported intermediates)…
      • Decrease in technical efficiency (ie reductions in the distance each firm is from its production frontier).
  • Note the policy implications vary substantially depending on the extent to which changes in TFP are driven by each of the above.
data an overview
Data: an overview
  • based on detailed firm level (FACS) survey of Moroccan industry for 1998 and 1999.
      • extremely detailed based on seven sectors: clothing, textiles, food processing, chemicals, plastic, leather, electrical machinery.
      • accounts for 53% of industrial production, 85% of exports, and 70% of manufacturing workers
      • Advantage of the survey is that it is extremely detailed (eg. including information at the product level, direction of exports, information on imported intermediates etc)
      • Disadvantage is that the data is only for two years, therefore some of the interesting questions regarding inter-sectoral and intra-sectoral compositional changes cannot really be addressed.
  • Time series data derived from the Annual Census of Manufacturing
      • has the advantage of the time series dimension, therefore can perhaps better capture the impact of changes (in explanatory variables) over time.
      • in principle also has data on more sectors than FACS
      • has the disadvantage of much less detail with regard to the possible explanatory variables
morocco policy overview
Morocco: policy overview
  • 1980’s saw beginnings of external trade reform, and this was taken further from the mid-1990’s onwards
      • Morocco becoming a member of WTO and liberalising MFN tariffs
      • Barcelona process and Association Agreement with the EU
      • bilateral FTAs
  • Other policy initiatives: privatisation, reform of labour law, exchange rate policy
  • 2-stage methodology:
    • Estimate / calculate a measure of productivity at the firm level
      • Parametric approach ie. econometrically estimate a production function
      • Non-parametric aproach ie. using index numbers
      • (Data Envelopment Analysis)
    • For the time series analysis:
      • examine the evolution of productivity over time
      • regress productivity on a shorter list of explanatory variables (age, size, share of exports in output)
    • For the FACS survery regress that measure of productivity on a list of possible explanatory variables...
      • Trade barrier, and intermedate input variables
      • R&D and capital variables
      • other firm specific variables (age, FDI, ISO certification, industrial action, skill level of work force...)

Productivity and its determinants - time series

**, *, + denote significance at 1%, 5% and 10% levels respectively

second stage
Second Stage:
  • Trade barrier variables: Tariff barriers on exports; Non-tariff barriers on exports; average domestic tariffs
  • Intermediate trade variables:Share of imported intermediates; Share of imported capital;Share of imported raw materials; Duty paid on imported capital
  • Other trade variables:Share of production exported (calculated at the firm level);Share of production exported (calculated at the sectoral level); Preparation undertaken for trade liberalisation with the EU.
  • R&D variables: Does the firm invest in R&D; No of products less than 5 years old; Share of workforce in R&D
  • Capital variables:Age of capital less then 5 years old; Age of capital between 5 & 10 years old; Age of capital more than 10 years old;Training by suppliers (of new machinery); Training undertaken abroad; Training from manuals
  • Other:Share of foreign ownership; Has the firm experienced any infrastructure related difficulties in the preceding year; Is the firm multiplant?; Has the firm applied for MEDA funding;Are the firm’s products ISO certified; No. of employees
  • Different approaches to productivity yield highly comparable results; little evidence of returns to scale
  • Time series analysis indicates:
    • increase in productivity over time, though not in more recent years
    • some evidence of positive correlation between exporting and (increases in) productivity in aggregate
    • relationship between trade and productivity different according to the size class of the firm and the industry being considered.
  • More productive firms tend to:
    • face lower domestic tariffs,
    • more obstacles in export markets for their products, use newer capital,
    • have a larger domestic market share,
    • may have applied for MEDA funding, and
    • may have products which are ISO certifies
policy conclusions
Policy Conclusions

Note importance of the heterogeneity of firms:

  • little evidence that in aggregate firms are becoming more productive
  • evidence suggests high levels of turnover of firms - why? What are the constraints firms face?
  • exporting is associated with higher productity levels - issues of causality and underlying mechanisms; potential role of deep integration
  • why are exiting firms typically more producting than entrants - is this a product of the learning process, or are there structural impediments eg. access to credit
  • similarly need to consider carefully the negative correlation between domestic openness and productivity - cold shower of competition v structural impediments
  • role of informal sector