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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. - PowerPoint PPT Presentation
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Determinants of productivity in Morocco – the role of
trade?
Michael GasiorekPatricia AugierGonzalo Varela
Part of a DFID funded study entitled:
Analysis of the Effective Economic Impact of Tariff Dismantling
(under the Euro-Med Association Agreements)
Background• 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
• Possible sources of growth in total factor productivity:1. inter-industry reallocation of resources to more
productive sectors according to shifts in comparative advantage
2. Within industry compositional shifts• More productive firms increasing their share of the market• Entry and exit of firms
3. 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.
Decomposing TFP growth
1. 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.
2. 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
Data: an overview
1. 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
Morocco: policy overview
1993 1997 2000
Food 72 61 52
Textiles 92 61 38
Clothing 99 71 50
Leather 60 50 43
Chemical 47 35 26
R&P 61 48 38
Electrical 65 37 17
2. 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...)
Methodology
Aggregate productivity over time
2.5
2.6
2.7
2.8
2.9
3
3.1
3.2
3.3
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Year
TFP
TFP
Productivity by sector
1990199119921993199419951996199719981999200020012002
Year
Pro
du
ctiv
ity Food
Textiles
Clothing
Leather
Chemicals
Plastics
Electrical
Productivity and its determinants - time series
Sectoral FE
Firm level FE
Sectoral FE
Firm level FE First differences
expout1 0.016** 0.016** 0.138** 0.17** 0.0759*size2 0.494** 0.196** 0.503** 0.179**
size3 1.007** 0.252** 0.944** 0.137**
Size 0.068*age 0.007** 0.029** 0.006** 0.033**
sqage 0 0** 0 0** -0.598**skunsk1 0.023+ 0.003 0.078Expoutsec -0.195 -0.08 0.252Impoutsec -0.034 -0.143* -0.132*Constant 1.777** 1.582** 2.398** 1.548**
1990-2002 1996-2000
**, *, + denote significance at 1%, 5% and 10% levels respectively
...by sector and size
Small Medium Large
expout1 0.281** 0.1** 0.047expoutsec1 -0.859** 0.123 0.269impoutsec1 -1.055** -0.05 0.418*skunsk1 -0.103+ 0.003 -0.02age 0.034+ 0.049** 0.002Constant 1.62** 1.621** 2.29**
Food Textiles Clothing LeatherChemicals R & P Electrical
15 17 18 19 24 25 31
expout1 0.01** 0.02** 0.046** 0.093 0.041** 0.163+ 0.087+size2 0.294** 0.16** 0.141** 0.049 0.143** 0.164+ 0.047size3 0.221** 0.307** 0.136** 0.097 0.21* 0.028 0.235+Age 0.021** 0.036** 0.034** 0.012 0.076** 0.018* 0.023+Sqage 0** 0** 0** 0 -0.001** 0 0Constant 1.971** 1.391** 1.053** 1.546** 2.416** 1.149** 4.12**
1. Trade barrier variables: Tariff barriers on exports; Non-tariff barriers on exports; average domestic tariffs
2. Intermediate trade variables: Share of imported intermediates; Share of imported capital; Share of imported raw materials; Duty paid on imported capital
3. 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.
4. R&D variables: Does the firm invest in R&D; No of products less than 5 years old; Share of workforce in R&D
5. 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
6. 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
Second Stage:
K-J Index
IV OLS
Tariff barrier variables
Tariff obstacles on Xs 0.173 - 0.127 - 0.114
NTBs obstacles on X’s
0.643***
0.484 0.490
Ave dom. tariffs - 0.296*
- 0.438***
- 0.398***
Intermediate trade variables
Share of imported interm.
- 0.032 0.056 0.033
Share of imported K - 0.207 - 0.059 - 0.062
Share of imported raw mat.
0.101 0.038 0.065
Duty paid on equipment
- 2.143 - 1.309* - 1.054
Other trade variables
Share of prod. exported
0.004**
0.001 0.001
Exp penetration (sector)
- 0.052 - 0.032 - 0.071
Preparation for trade w/EU
- 0.077 0.010 0.006
Productivity and its determinants? - trade
K-J Index
IV OLS
Tariff barrier variables
Tariff obstacles on Xs 0.173 - 0.127 - 0.114
NTBs obstacles on X’s
0.643***
0.484 0.490
Ave dom. tariffs - 0.296*
- 0.438***
- 0.398***
Intermediate trade variables
Share of imported interm.
- 0.032 0.056 0.033
Share of imported K - 0.207 - 0.059 - 0.062
Share of imported raw mat.
0.101 0.038 0.065
Duty paid on equipment
- 2.143 - 1.309* - 1.054
Other trade variables
Share of prod. exported
0.004**
0.001 0.001
Exp penetration (sector)
- 0.052 - 0.032 - 0.071
Preparation for trade w/EU
- 0.077 0.010 0.006
Productivity and its determinants? - trade
K-J Index
IV OLS
Tariff barrier variables
Tariff obstacles on Xs 0.173 - 0.127 - 0.114
NTBs obstacles on X’s
0.643***
0.484 0.490
Ave dom. tariffs - 0.296*
- 0.438***
- 0.398***
Intermediate trade variables
Share of imported interm.
- 0.032 0.056 0.033
Share of imported K - 0.207 - 0.059 - 0.062
Share of imported raw mat.
0.101 0.038 0.065
Duty paid on equipment
- 2.143 - 1.309* - 1.054
Other trade variables
Share of prod. exported
0.004**
0.001 0.001
Exp penetration (sector)
- 0.052 - 0.032 - 0.071
Preparation for trade w/EU
- 0.077 0.010 0.006
Productivity and its determinants? - trade
K-J Index
IV OLS
Tariff barrier variables
Tariff obstacles on Xs 0.173 - 0.127 - 0.114
NTBs obstacles on X’s
0.643***
0.484 0.490
Ave dom. tariffs - 0.296*
- 0.438***
- 0.398***
Intermediate trade variables
Share of imported interm.
- 0.032 0.056 0.033
Share of imported K - 0.207 - 0.059 - 0.062
Share of imported raw mat.
0.101 0.038 0.065
Duty paid on equipment
- 2.143 - 1.309* - 1.054
Other trade variables
Share of prod. exported
0.004**
0.001 0.001
Exp penetration (sector)
- 0.052 - 0.032 - 0.071
Preparation for trade w/EU
- 0.077 0.010 0.006
Productivity and its determinants? - trade
K-J Index
IV OLS
R&D variables - - -
Capital variables
Age of capital < 5 years
- 0.227 0.409**
0.387*
Age of capital: 5 < 10 years
0.248 0.460**
0.482**
Age of capital > 10 years
- 0.349 0.252 0.273
Infrastructure problems - 0.323**
- 0.072 - 0.086
Market share - 0.272 0.382**
0.429**
MEDA funding applied for?
0.394*
0.143 0.175**
Are the products ISO certified
0.531**
0.030 0.104
No of employees 0.083 - 0.029 0.009
Share. of foreign. own - 0.210 - 0.186* - 0.215**
Productivity and its determinants? - R&D and Capital
K-J Index
IV OLS
R&D variables - - -
Capital variables
Age of capital < 5 years
- 0.227 0.409**
0.387*
Age of capital: 5 < 10 years
0.248 0.460**
0.482**
Age of capital > 10 years
- 0.349 0.252 0.273
Infrastructure problems - 0.323**
- 0.072 - 0.086
Market share - 0.272 0.382**
0.429**
MEDA funding applied for?
0.394*
0.143 0.175**
Are the products ISO certified
0.531**
0.030 0.104
No of employees 0.083 - 0.029 0.009
Share. of foreign. own - 0.210 - 0.186* - 0.215**
Productivity and its determinants? - R&D and Capital
K-J Index
IV OLS
R&D variables - - -
Capital variables
Age of capital < 5 years
- 0.227 0.409**
0.387*
Age of capital: 5 < 10 years
0.248 0.460**
0.482**
Age of capital > 10 years
- 0.349 0.252 0.273
Infrastructure problems - 0.323**
- 0.072 - 0.086
Market share - 0.272 0.382**
0.429**
MEDA funding applied for?
0.394*
0.143 0.175**
Are the products ISO certified
0.531**
0.030 0.104
No of employees 0.083 - 0.029 0.009
Share. of foreign. own - 0.210 - 0.186* - 0.215**
Productivity and its determinants? - R&D and Capital
K-J Index
IV OLS
R&D variables - - -
Capital variables
Age of capital < 5 years
- 0.227 0.409**
0.387*
Age of capital: 5 < 10 years
0.248 0.460**
0.482**
Age of capital > 10 years
- 0.349 0.252 0.273
Infrastructure problems - 0.323**
- 0.072 - 0.086
Market share - 0.272 0.382**
0.429**
MEDA funding applied for?
0.394*
0.143 0.175**
Are the products ISO certified
0.531**
0.030 0.104
No of employees 0.083 - 0.029 0.009
Share. of foreign. own - 0.210 - 0.186* - 0.215**
Productivity and its determinants? - R&D and Capital
K-J Index
IV OLS
R&D variables - - -
Capital variables
Age of capital < 5 years
- 0.227 0.409**
0.387*
Age of capital: 5 < 10 years
0.248 0.460**
0.482**
Age of capital > 10 years
- 0.349 0.252 0.273
Infrastructure problems - 0.323**
- 0.072 - 0.086
Market share - 0.272 0.382**
0.429**
MEDA funding applied for?
0.394*
0.143 0.175**
Are the products ISO certified
0.531**
0.030 0.104
No of employees 0.083 - 0.029 0.009
Share. of foreign. own - 0.210 - 0.186* - 0.215**
Productivity and its determinants? - R&D and Capital
K-J Index
IV OLS
R&D variables - - -
Capital variables
Age of capital < 5 years
- 0.227 0.409**
0.387*
Age of capital: 5 < 10 years
0.248 0.460**
0.482**
Age of capital > 10 years
- 0.349 0.252 0.273
Infrastructure problems - 0.323**
- 0.072 - 0.086
Market share - 0.272 0.382**
0.429**
MEDA funding applied for?
0.394*
0.143 0.175**
Are the products ISO certified
0.531**
0.030 0.104
No of employees 0.083 - 0.029 0.009
Share. of foreign. own - 0.210 - 0.186* - 0.215**
Productivity and its determinants? - R&D and Capital
1. Different approaches to productivity yield highly comparable results; little evidence of returns to scale
2. 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.
3. 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
Summary
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
Policy Conclusions