The Moorish Wanderer

“There’s Your Turn” – “You’ve Missed It, You Idiot”

Posted in Ancient Times, Happy Times, Dismal Economics, Morocco, Read & Heard by Zouhair ABH on November 23, 2012

From Robin William’s One Man Show “Weapons of Self-Destruction”

At the risk of stating the obvious, Morocco is very sensitive to exogenous and foreign (imported) shocks, as it is a small and open economy (75.9% of its GDP goes to foreign trade) And from my ivory tower I foresee a bad course of action, captured in one essential aggregate of growth in Morocco: household consumption is too volatile, too high to actually benefit from its openness to foreign trade – and some government policies come to mind in order to explain these discrepancies: the Subsidy fund harms growth.

de-trended quarterly foreign trade and technological growth – the combined effect of both exogenous aggregates produce interest results

Morocco observes domestic and foreign shocks; these are weakly negatively correlated, as shown on the graph. It is obvious foreign shocks exhibit larger magnitudes – the changes due to oil prices, exports and imports for instance are very large and quite volatile. Mainstream economics tells us large shocks should compel households to be more prudent about their consumption habits: if you are expecting oil prices to vary significantly, you might want to think twice before getting to work on your car – but on the other hand, because the government provides a comfortable cushion that keeps fuel prices low, whatever happens overseas is of little concern to you. Speaking of which, there is going to be a long-term effect of the government’s decision to lift some of the subsidies on oil derivatives: HCP’s estimates were an average decline of 1.13% in household consumption:

[…] Le pouvoir d’achat des ménages serait en dégradation et leur consommation connaîtrait en conséquence une baisse passant de 0.98% en 2012 à 1.53% en 2013, pour se stabiliser aux alentours de 0.97% en 2016-2017.[…]

mine is somewhat more pessimistic, close to 1.37%. Same goes for GDP impact, though HCP estimates an average .61% in lost GDP, close enough to my forecast of .69%:

[…] Au total, le produit intérieur brut (PIB) devrait enregistrer un manque à gagner de 0.39% en 2012, de 0,74% en 2013-2014 et 0.69% en 2017. […]

But let us get back to the issue of Morocco as a small, open economy: an earlier post showed growth in Morocco is mainly driven by technological change, though I have restricted the results to domestic shocks:

The addition of foreign shocks (imported technological change) only confirms my initial assumption: total technological change account for 73% of observed growth since 1995, including a 13.6% contribution from foreign trade, almost on par with physical capital accumulation.

Technical Note:

I have attached impulse-response graphs for both Domestic and Foreign Shocks; graphs are read as the percentage of aggregate variation from steady-state following a one-period, 1% exogenous shock.