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ABSTRACT
This paper studies the effect of market distortions in the manufacturing sector in Morocco. Recent microdata are used to calculate the extent of resource misallocation associated to these distortions and the potential total factor productivity (TFP) gain resulting from their removal. Market distortions in the manufacturing sector in Morocco are higher compared with developed countries and slightly more important compared with other developing countries, such as China and India. These distortions decreased between 2007 and 2013. Full liberalization would raise TFP by about 84%. If distortions are removed to the level of selected developed countries with better resource allocation, the increase in TFP would be of 56%. The paper also suggests that industries that are more opened to competition such as textiles industries present lower levels of market distortions compared with more protected industries with relatively little competition, such as the food industry. Besides, some evidence is provided showing that smaller firms face more extensive distortions compared to medium and larger firms. The main results of the paper are robust to an alternative estimation that uses a different methodological framework with a less extensive theoretical framework.
Acknowledgments
Jean-Pierre Chauffour and Jose L. Diaz-Sanchez are respectively Lead Economist for the Maghreb region and Economist, World Bank. The views expressed in this article are those of the authors and do not necessarily represent those of the World Bank. We would like to thank Abdessamad Saidi, Anta Ndoye, Fernando Parro, Addisu Lashitew, Ragbi Aziz, and participants of a research seminar of the Bank Al-Maghrib for useful comments and discussions.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 Note that this is an indirect approach to analyzing misallocation. This approach contrast with direct approaches, which analyze the impact of specific frictions (for instance see Buera et al., Citation2011; Moll, Citation2014, for the case of financial frictions).
2 The density of new businesses (a proxy for competition strength) in comparison with the total population is higher than in other countries in the region but low in comparison with many emerging market economies (Klapper & Love, Citation2010).
3 These sectors include notably, agriculture and marine fisheries; energy, mines, water and the environment; infrastructure and transportation; housing, urban planning and local and regional development).
4 At the end of 2015, the EEP sector represented about 8% of gross domestic product (GDP) and almost 25% of the country's total investment through 212 public establishments, 44 companies in which the government had direct equity holdings and some 442 subsidiaries and public shareholdings.
5 Morocco's Doing Business ranking improved from the 129th position to the 53th position during 2010–2019.
6 Note that while corruption involves the visible costs related to illicit payments and a poor allocation of resources, its highest cost is invisible and involves missed opportunities: the businesses that are not created, the investments that are not made, the loans that are not granted, and, ultimately, the jobs that are not created.
7 See their work for a more detailed exposition.
8 HK shows that the overall market distortion in this framework is equivalent to a modified model where instead of output and factor distortions there are only capital and labor distortions.
9 HK shows that it is straightforward to write the model with the capital and labor market distortion separately and to obtain the same results. However, the output distortion will no longer be identified.
10 TFPQ reflects the quality and variety of a firms' products, not just its physical productivity (see HK for the demonstration).
11 HK shows that a Lucas span-of-control model (diminishing returns in production rather than utility) and monopolistic competition are isomorphic for aggregate TFP if the number of firms is proportional to labor input.
12 We acknowledge that removing loss-making firms could prevent the analysis to fully capture market distortions. However, in Hsieh and Klenow (Citation2009) and other papers using this theoretical framework, a log transformation is applied to the value added variable, which dropped automatically loss-making firms from the sample. Using levels instead of logs would make impossible the comparison of our results with those in the literature.
13 Source: UNIDO.
14 In the robustness subsection, we show that market distortions in Morocco are also higher than the average of a large group of developing economies.
15 Remark that in WBES2007 for Morocco ‘Confectionery’ is treated as a separate industry and not included as usual in the ‘Food’ industry.
16 In 2013, for example, the Competition Council identified a tacit pricing agreement between market participants in the dairy products sector and reported a high level of concentration.
17 In our sample, the simple average of for small, medium and large firms is respectively 0.47, 0.64, and 0.62.
18 The WBES2013 finds that firms consider the informal sector as one of the top obstacles they face.
19 Source: Haut Commissariat au Plan.
20 Although this does not enjoy a full consensus in the empirical literature, see for instance Kaplan et al. (Citation2011).
21 More precisely, 138 is a number obtained by the authors using results from Inklaar et al. (Citation2015).