The Moorish Wanderer

Agriculture, EU and Morocco’s GDP: Some Evidence To Consider

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on January 5, 2012

The IMF annual report published last month showed a startling correlation between EU’s and Morocco’s respective GDPs (p.20) and it got me thinking: what if Agricultural GDP was no longer the main variable conditioning the overall economic growth, but rather the EU’s own economic performances? It would then mean that Hubert Lyautey‘s “Gouverner, c’est pleuvoir” would no longer hold, and apart from proving that Morocco has fully integrate itself in global trade, it would mean that policy-makers would have the means to correct, stabilize and expand GDP growth.

Robust growth for both EU and Morocco starting from the early 2000s

It would also mean that many dysfunctional mechanisms within governmental policies, regarding agricultural taxes, agrarian reforms and a host of other agriculture-related issues would no longer be justified: since the working axioms seems to be “don’t fix it if it ain’t broken” when applied to agriculture, I submit the actual strength correlation between Morocco’s and EU’s GDP would direct policy-makers rather to implement structural reforms in agriculture, because it needs it, and because global trade and the versatile nature of the Moroccan economic structure have made these reforms compelling.

First off, both the EU and Morocco have enjoyed relatively high levels of growth with the beginning of the 2000s: in fact, most of the emerging and advanced economies did at the time up to 2007-2008. I argue Morocco benefited somehow from the expansion in EU countries, by means of trade -and we shall have a look at the exports later on- as well as DFI (Direct Foreign Investment) both of which are directed to and received from the EU. Accordingly, and given a pre-specified statistical device, we can even predict with some precision when the first signs of recessions in the EU will bite and influence Morocco’s GDP – what was a blessing during the good years might turn out to be a curse in the bad ones.

As for agriculture, the strong correlation observed with the EU GDP proves it no longer conditions growth for Morocco’s overall output. The usual justification that growth was weak because it didn’t rain hard enough for a good harvest no longer stand precisely because other variables influence GDP growth, and these do allow for government policy, and thus increase public authorities’ responsibility for delivering on growth and a whole lot of other targets: fiscal redistribution, targeted subsidies, unemployment and job creation, many issues that can and must be accounted for – from all government branches, elected or not.

All correlations are robust beyond the 99% IC

A technical note perhaps: growth rates do not seem to be of any stochastic process nature, and problems of autocorrelation or multicollinearity did not arise – not at significant levels, anyway; therefore, the figures that are shown below are free of any hidden correlation. I’ve got a bit confused here – I may be compelled to post on the subject in more details later on.

A couple of crude but good indicators: Since 1970, correlation between non-Agricultural GDP and total GDP has been stronger (.999) than that between the latter and Agriculture GDP (.984) and that correlation increases over time (and if only I can lay my hands on quarterly data, I can show you more reliable figures too) Not only that, but EU GDP correlates almost equally with both Non-Agriculture and total GDPs (respectively .977 and .976)

When normalized correlation is considered, EU and Non-Agricultural GDP stand out as most correlated to total GDP; the assumption that any relationship beween EU, Non Agriculture and total GDP is stronger than that between total and Agricultural GDP. The next step is now to define, as precisely as possible, a model that would capture the contribution of each component in the total GDP growth;

Now, when considered in broad macro aggregates, EU’s GDP doesn’t do so well: in fact, the basic model, while it vindicates the assumption of a preponderant contribution of non-agricultural GDP on total GDP, the model and the various tests are not really affected by the introduction of EU growth – in facts, the usual tests applied to determine its contribution to the model point out to a marginal effect – and regressed coefficients on Agri and Non-Agric GDP attest to that;

Effect and correlation EU-Non Agricultural GDP is stronger than EU-total GDP

So there it is: EU influences non-Agricultural GDP, a major component of total GDP – and the long term trend is that agricultural output has less an effect on overall growth, even though the last two years have displayed a relatively robust growth thanks to a good harvest. This actually vindicates the initial argument that agriculture contributes less to total output: when compared to other GDP component, it remains the most volatile sub-group GDP, and thus may not be reliable for future growth.

Regression results

The latest communication from HCP’s survey of national aggregate may prove my point:

Au niveau de la demande, la croissance économique a bénéficié notamment de l’impulsion de la demande intérieure au cours du troisième trimestre 2011. Les dépenses de consommation finale des ménages se sont accrues de 7,3% au lieu de 4,4%. Leur contribution à la croissance a été de 4,1 points. La formation brute de capital, de son côté, a augmenté de 4,6% au lieu de 5,4%, portant sa contribution à la croissance à 3,7 points.

En revanche, le solde des échanges extérieurs de biens et services a contribué négativement à la croissance économique de 3,8 points. C’est ainsi que les exportations de biens et services qui ont augmenté de 5,3% au lieu de 10,1% ont contribué de 1,6 point à la croissance du PIB, alors que les importations qui se sont accrues de 14,8% contre une diminution de 1,6% ont enregistré une contribution négative de 5,4 points.

In the event of a generalised recession with the most significant commercial partners with the European Union, we should almost certainly expect a decrease in non-Agricultural GDP and by the same token, lower growth rates for total GDP.

[More to come on that later, I have bitten more than I can chew on this one…]

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