The Moorish Wanderer

Mixed-bag agriculture

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on May 24, 2012

I have read it ever since I took interest in Moroccan economics: “advanced models matter very little because, in the final analysis, the Moroccan economy relies heavily on agriculture”;

This sector plays a substantial role in the macroeconomic balance of the country.

The quintessential argument behind any serious rationalization over quantitative predictions on the Moroccan economy has been the importance of agricultural output. While it is clear that particular sector is of vital interest to the Moroccan people and businesses, I would like to submit some pieces of evidence that challenge the conventional wisdom surrounding it. Because only too often do our government officials, elected and otherwise, get away with their failure to create the right conditions for growth and job creation by hiding behind the Agriculture Smoke-screen. My criticism doesn’t apply to a particular government, it is merely an observation.

First off, Agriculture as a percentage of GDP is decreasing at a steady pace since independence. I took the liberty to generate the missing decade from the World Bank Data and then retrofit it back into the PWT dataset; since 1955, while Agricultural GDP grew 4.31% on average (in real terms per capita) its share of total GDP fell a modest – 0.17% on annual average over the period, decreasing from 23.7% in 1955, to 13.84% in 2011.

We are interested in looking into the effect of agricultural output on the aggregate business cycles: if indeed correlation was strong, as strong as, say that of domestic consumption, then the official line holds: agriculture matters, it influences Morocco’s economic performance, and has to be taken care of. However flawed the tax exemption is, it would make sense as a policy in broad principle: a tax-pristine economic sector doesn’t usually experience fiscally induced distortions, and the main thing our agricultural sector would benefit from is a smoothing of an all-too volatile cycle. On the other hand, if the agricultural output doesn’t exhibit strong correlation indicators with GDP and the other significant aggregates, then we can say with a great deal of certainty that agriculture, while retaining its importance for a significant part of Morocco’s labour force, does not hold sway over Morocco’s economic performances, and as such makes it even harder to justify some policies and plans for that particular sector.

Let us consider these moments where the economy departs from its long-term trend; as per definition, an economy is on the expansionary phase if its cycle is above the long-term trend:

. sum HP_y_1 if HP_y_1>0
    Variable |       Obs        Mean    Std. Dev.       Min        Max
      HP_y_1 |        30    .0627514    .0426686    .005383   .1696304

and in recession when below

. sum HP_y_1 if HP_y_1<0
    Variable |       Obs        Mean    Std. Dev.       Min        Max
      HP_y_1 |        27   -.0697238    .0409879  -.1399502  -.0107043

when below potential output, recessions tend to be a little less volatile and a little deeper. “Boom” periods, on the other hand, are prone to be more volatile but with a weaker growth figure in absolute value. but overall there is a great deal of symmetry. Is this however due to agricultural output? We know both cycles exhibit a correlation coefficient of .62 but on the other hand, we get:

. . sum HP_y_1 if   HP_y_g_1>0
    Variable |       Obs        Mean    Std. Dev.       Min        Max
      HP_y_1 |        29    .0419493    .0648962  -.0682606   .1696304
. . sum HP_y_1 if   HP_y_g_1<0
    Variable |       Obs        Mean    Std. Dev.       Min        Max
      HP_y_1 |        28   -.0434474    .0677846  -.1399502   .102021

When the agriculture sector is in trouble, so is total GDP (hence the positive coefficient of correlation) but one can notice the virtual symmetry in their dynamics – as though the effects of agricultural fluctuations are ‘locked’ into a tunnel: however agriculture fares, the projected fluctuations conditioned by its state on GDP are located between – 4.2% and + 4.3% deviation from steady state, which is still less volatile than the total aggregate itself. In fact, the correlation in cycles is weak whenever agricultural GDP is in recession: .29 vs .414 when it is expansionary. the symmetry doesn’t carry beyond cycle statistics, which confirms the initial assumption agriculture is not a drag on the aggregate economy.

To sum up:

1/ Agricultural output is more volatile than GDP – respectively .113 and .0785 (in standard deviation).

2/ AGDP and GDP are more correlated in periods of expansionary cycles than they are in times of recession.

3/ GDP is more volatile when AGDP is in recession, but the average recession has a smaller magnitude and volatility compared to the broader aggregate.