Deep Integration, Firms and Economic Convergence

This report contains 2 parts. In first we analyse the impact on firm performance of deeper integration by using both business environment indicators and firm characteristics. In a second part we see how the major reforms and transformations undertaken have generated further convergence between Morocco and the European Union by using data, qualitative information and some case studies of enterprises.

The aim of the first part is to analyse the role of the business environment in understanding differences in the performance of Moroccan firms. We use both the Moroccan Annual Census (1997-2004) and detailed surveys conducted by the World Bank (FACS and ICA). The business environment is captured by measures which include the investment climate in which firms operate, i.e. access to credit, regulatory and institutional environment and infrastructure. The firm performance is measured by the total factor productivity (TFP), which is estimated using both classic technique of Olley & Pakes (1996), and the more recent approaches suggested by Ackerberg (2007). The evidence on the relationship between credit and productivity is strongly suggestive of credit resources misallocation in Morocco. We also find that the lack of fiscal homogeneity across firms sector is positively linked to lower firm-level TFP. Thirdly we find that, heavier bureaucracy and differences in regulations appear to have a negative effect on firm TFP. But these two last results are particularly relevant for small firms, and/or those that do not export and/or those with no access to foreign capital.

The second part is devoted to describing the salient economic and social features that have characterized Morocco during the last recent years. The present report looks at different macroeconomic, trade and microeconomic issues to see how the major reforms undertaken have generated further convergence between Morocco and the European Union. The analysis is based both on data, qualitative information and some case studies of enterprises. The outcomes attained show that Morocco is actively pursuing changes and reforms in almost all sectors in relation to the collaborative framework with the EU. During these last fifteen years, Morocco has been undergoing major changes, reforms and transformations that have been shaping globally the economy and society. These reforms have been also related to the acceleration of the openness of the economy and to series of agreements and international arrangements promoted during this era. These agreements include the relationships with the European Union (EU). Within this framework, the attainment of higher levels of convergence to EU and international standards in most of the economic, social and political components is expected. The present study is a description of the achievements observed in Morocco within the last fifteen years. It is mainly based on existing official reports and documents produced by Moroccan Government, private organizations and non-governmental agencies with other documents from international institutions. As this is mainly a descriptive study, the report covers the overall agreements, the economic policies, the political and social reform before ending with the situation expressed at the level of enterprises by the firms themselves but also by the data published by World Bank under “Doing Business”. The second part of report starts with a synthesis.