Determinants of productivity in Morocco – the role of trade?
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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)

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Background trade?

  • 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

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Decomposing TFP growth trade?

  • 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.

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Data: an overview trade?

  • 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

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    Morocco: policy overview trade?

    • 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

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    Methodology trade?

    • 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...)

    Slide9 l.jpg

    Productivity and its determinants - time series trade?

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

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    Second Stage: trade?

    • 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

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    Summary trade?

    • 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

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    Policy Conclusions trade?

    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