The Moorish Wanderer

Pushing the Boundaries of Potential Growth

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard, Tiny bit of Politics by Zouhair ABH on September 13, 2011

An interactive reader pointed out to me a few days ago that the proposed regression in an earlier post about potential growth. The remark focused precisely on the estimated TPF: .16. No way productivity and technical progress would record such a high number, especially for Morocco.

Model shows constant returns to scale, as well as robust indicators

But the model is not wrong, quite de contrary: the measured logarithmic GDP is real GDP growth, with 1981 as base year. Because the domestic economy was in deep recession during the 1980s -due to the conjugated effect of debt crisis and contracting GDP- any growth observed with respect to that base year is not adulterated by yearly fluctuations; This modus operandi fits the long-term framework for estimating labour and capital contribution to growth, as well as the estimation of potential GDP. Because the global economy has recorded a phenomenal increase in productivity and technical progress, the residual of 0.16 is logical and expected; as a matter of fact, at least 95% of estimated values are positive, which vindicates the robustness of this model. And so, it is safe to say that on average, over the last 30 years, TPF have contributed 0.16 bps to real GDP growth. We can do better, and we must do better, because, as Prof. Akesbi pointed out, our average growth rate – as well as potential growth- are too low to catch up with emerging economies.

While I have considerable doubts over Prof. Akesbi’s claim that Morocco needs to do8% GDP growth to be an emerging country, I certainly agree the Moroccan economy needs to expand without putting strain on its productive factory, or induce inflationary pressures. Not that Moroccan cannot do 8%, but reaching such a target would inevitably trigger inflationary pressures, just like in the mid-1970s: Morocco recorded 10.81% growth in 1976, but was hit back with a 12.6% inflation rate the year after; Of course, the Moroccan economy at the time could not on itself create a Chinese-style growth, something that was swiftly followed by an inflationary spiral fuelled by borrowings and geopolitical conjecture that led in the 1980s to sever crisis and recession.

Since mid-1990s, inflation broke away from GDP growth lag, as output gap has been, on average, negative over the period

An 8% growth bridges only partially the accrued output gap since 1991, and Morocco basically needs to keep up 8% for about a decade to beat potential GDP, an impossible task to perform, even with a halcyon global economic conjecture. It would be better -and smarter- to think of different ways to expand our economy; And as it happens, the “White Heat of Technology” Prime Minister Harold Wilson referred half a decade ago perfectly applies to Morocco: invest in research & development, primary, higher and continuous education, and encourage smaller but more innovative and adventurous businesses to lift us up and expand output for all of us. We start with 0.16 points contribution to growth. The challenge is to go to 1 to 2 full points for growth; It can be done, and it is to the benefit of everybody to do so.

The cost to push potential GDP growth 2 basis points above over a decade is MAD 135Bn, or MAD 132Bn when adjusted for inflation. That means an average R&D spending of MAD 13.3Bn per annum. These spendings are not necessarily public commitment, and private sector can chip in too; But over all, a 13Bn overhaul is double Agriculture and Fishery ministry investment spendings, or 3 times spendings on expanding Education and Research.

But then again, we are in for a different kind of future with our esteemed leaders; the kind of investment for the future engineered higher up is TGV, Tangiers port and other trickling-down economics.Education, Small business and scientific research are not the priority.

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  1. […] de la croissance potentielle sans tensions inflationnistes ou sur le marché de l’emploi: j’ai exposé dans un post précédent que depuis les années 1980s, la contribution réelle du progrès technique (ou du productivité […]

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