Abstract
This Selected Issues paper analyzes the recent developments in the Moroccan economy and its policy challenges over the medium term. It assesses the sustainability of public debt in Morocco. The paper uses the analytical framework for assessing debt sustainability in emerging market countries endorsed by the IMF Executive Board and compares Morocco’s vulnerabilities with those of the average emerging market country. The paper also examines the effects on Morocco’s trade pattern of the ongoing integration with the European Union within the Barcelona process.
II. Impact of the Barcelona Process on Morocco’s Trade13
A. Introduction
24. A closer integration with the global economy is a key component of Morocco’s growth strategy. Increased openness to trade and capital flows can contribute to improve economic performance through a more efficient allocation of resources, technology transfers, scale effects, competitive pressure, and improved access to foreign savings. Morocco’s main trade liberalization efforts have been undertaken with the European Union (EU), first under a cooperation agreement, and more recently—and more significantly—within the Barcelona process. 14 This process, initiated in Barcelona in 1995, aims at closer political, economic, and cultural cooperation between the EU and Southern and Eastern Mediterranean countries (henceforth referred to as Mediterranean countries). The main instruments used to build the economic partnership are the bilateral Association Agreements with the European Union (AAEU), supported by grants under the MEDA program, and complemented by loans by the European Investment Bank (EIB). The principal objectives are to create a Euro-Mediterranean free trade zone by 2010, alleviate the challenges from economic liberalization through capacity building and measures to enhance competitiveness, and increase foreign direct investment into Mediterranean countries. Morocco’s AAEU entered into force on March 1, 2000, making the country the third participant after the Palestinian Authority (1997) and Tunisia (1998). 15
25. The Barcelona process presents both opportunities and risks. While quantification of its impact on welfare is beyond the scope of this study, the effect of the process on Morocco’s trade pattern will be analyzed, using a gravity model of bilateral trade. In particular, the following questions will be addressed:
Has the Barcelona process resulted in trade creation? Several factors could potentially impede the generation of trade between the EU and its Mediterranean partners. Exports creation toward the EU could suffer if Morocco and other Mediterranean countries are not competitive enough to penetrate the European market. On the import side, Morocco’s AAEU, like those of other countries, provide for a significantly more rapid reduction in tariffs on non-competing capital goods and intermediate inputs than on competing final goods. As a result, effective protection increases initially, to be reversed only over time.
Is there evidence of trade diversion? Similar to all preferential trade liberalization efforts, the Barcelona process in general and the AAEUs in particular risk displacing trade from more competitive non-EU producers to less competitive producers (tariffs excluded) within the EU. As a result, a portion of the welfare gains from trade liberalization could potentially accrue to inefficient European producers, while the Mediterranean countries pay the price in terms of lost fiscal revenue from tariffs.
Has there been any impact on intraregional trade, i.e., on trade among Mediterranean countries? One of the objectives of the Barcelona process is to increase foreign direct investment (FDI) in Mediterranean countries. However, as long as trade barriers are higher between Mediterranean countries than those vis-ð-vis the EU, there is a risk of a “hub and spoke” effect, whereby FDI is directed toward the EU rather than toward Mediterranean countries. By contrast, increased intraregional integration could counter this effect by expanding the market size both for intermediate and final goods.
B. Developments in Trade Patterns Since 1990
Analytical Framework: The Gravity Model of Bilateral Trade
26. The gravity model is a tool often used to analyze bilateral trade patterns. Its simplicity and high level of statistical explanatory power have contributed to promoting its wide use. The basic gravity model relates some measure of bilateral trade (imports, exports, or both) to the economic size of two countries, and the geographical distance between them. Population (or GDP per capita), is often also included, along with other variables that could influence bilateral trade. The general specification used here is:
where Mij is imports to country i from country j. Only south-south and north-south trade is considered, given that the focus of the analysis is on Morocco and that hence intra-industrial country trade (in particular intra-EU trade) is unlikely to provide an appropriate reference for the trade flows studied here. Yi and Yj are GDP in country i and j respectively, Pi and Pi are population in country i and j, Dij is the distance between country i and j, Xij is a vector of variables describing either country i or j, or both. This vector includes the share of agriculture in GDP of the exporting country and dummy variables for trade between partners sharing the same language, for partners bordering each other, for primary commodity exporters, and for landlocked countries. 16 εij is a normally distributed error term, with zero mean.
27. Bilateral trade can be expected to depend positively on the size of the two economies, and negatively on the distance between the countries. A large population is generally considered to relate negatively to trade, since this would imply a larger domestic market and a higher degree of auto-sufficiency. 17 Trade is also likely to be higher between bordering countries and countries sharing a common language, and lower for landlocked countries. The share of agriculture in GDP can be expected to correlate negatively to exports, since trade protection tends to be particularly high against agricultural products. Trade in primary commodities should ideally be excluded from the gravity model, given that terms of trade swings can cause significant volatility in trade. However, IMF’s Direction of Trade Statistics (DOTS) provides data for total trade only, and a dummy variable for commodity exporters is used instead. 18 There is no strong a priori reason for this dummy to be positive or negative.
Empirical Results
28. The econometric analysis is based on a dataset covering bilateral trade for 90 countries. Three-year averages are calculated for four separate regressions for the periods 1991–93, 1994–96, 1997–99, and 2000–02 (latest available). Dummy variables for trade between Mediterranean countries19 and the EU, intra-Mediterranean trade, and Mediterranean trade with the rest of the world are included to analyze any changes in trade patterns over time. Any changes in Mediterranean trade patterns—as seen by changes in the coefficient for the relevant regional dummies—can reasonably be attributed mainly to the Barcelona process, since it is the principal trade liberalization initiative undertaken in that region during the studied period. Another set of regressions is carried out using regional trade dummies for the EU, the Middle East and North Africa (MENA), Asia, sub-Saharan Africa, European developing countries, Latin America, and non-EU industrial countries to control for wider regional trade developments. 20 This dummy also proxies for regional difference in overall progress in macroeconomic and structural reform. The results are presented in Tables 1 and 2 in Appendix II.
29. The interpretation of the results is different for the regressions including and excluding regional dummies. In the latter case, based on a country pair’s respective GDP and population, distance etc., the model predicts the “normal” level of bilateral trade using all south-south and north-south trade as a reference indiscriminately. The signs for the various dummies for Mediterranean trade indicate whether this trade is below, at (in case the coefficient is insignificantly different from zero), or above the “normal” level. Changes in the level of the coefficients over time point to improvements or deteriorations of the trade performance. In the regression including regional dummies, different regions are considered to have different “normal” trade levels. Loosely speaking, without regional dummies, Mediterranean trade is compared to that of all developing countries, while with regional dummies it is compared to that of trade in the MENA region. The latter will always yield more favorable results, given that, according to the model, the MENA region’s trade performance was the poorest among all regions in the studied period (see Table 2 and Figure 2 in Appendix II).
30. The estimated gravity model displays reasonable properties and is robust with regard to variables included (Tables 1 and 2 in Appendix II). The estimated coefficients for the basic variables—GDP, population, distance, common language, common border, and agricultural share of GDP—are nearly always highly significant, with the expected sign. Interestingly, the share of agriculture in GDP is only significant from the mid-1990s onward, plausibly an outcome of the increasing protection wedge between agricultural and industrial products. In addition to the core gravity model, a set of regressions is shown (for the latter two periods only, due to data availability), including institutional and trade policy variables. 21 These regressions show that the rule of law, control of corruption, and trade policies are all important for trade, although rule of law is not always significant simultaneously with the corruption and trade restrictiveness variables. Institutional weaknesses may explain part of the trade underperformance in the MENA region, since coefficients both for Mediterranean import dummies and the overall MENA dummy generally increase once these variables are included.
31. While the Mediterranean countries’ trade performance is mixed relative to developing countries in general, it is strong compared to other MENA countries (Figure 1). Morocco and Tunisia, the only countries to have ratified their AAEUs before the end of the studied period are among the strongest performers. Both Tunisia’s imports from and exports to the EU are at the level predicted for any developing country. The same applies to Syria, perhaps for less obvious reasons. Morocco is the only country to have improved (relative to all developing countries) both its imports and exports performance vis-à-vis the EU since the beginning of the Barcelona process in the mid-1990s. Only Jordan overimported from the EU relative to the predicted value for developing countries, albeit to a declining degree. Egypt’s limited trade creation, despite trade liberalization efforts in the mid-1990s, may be linked to a significant appreciation in that country’s real effective exchange rate during the 1990s and tensions in the foreign exchange market toward the end of the reviewed period. Although Algeria seems to have under-traded (relative to all developing countries) with the EU, and increasingly so during the second half of the 1990s, the results are significant for imports only. Moreover, Algeria’s broad liberalization efforts in the mid-1990s and its comprehensive tariff reform in 2001 do appear to have generated trade performance improvements relative to the MENA region, although the results remain statistically insignificant on the export side. The latter is consistent with a lack of diversification of Algeria’s exports, which remain dominated by oil. Overall, there is clear evidence of trade creation between Mediterranean countries and the EU, once account is taken of regional effects. This evidence is substantially stronger on the import side than on the export side.
Trade Creation Effects with the EU
Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A002
Source: IMF staff calculations (see Tables 1 and 2 in Appendix II)Trade Creation Effects with the EU
Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A002
Source: IMF staff calculations (see Tables 1 and 2 in Appendix II)Trade Creation Effects with the EU
Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A002
Source: IMF staff calculations (see Tables 1 and 2 in Appendix II)32. Morocco saw significant trade creation effects with the EU on the import side, but imports appear to remain below their “normal” level.22 According to the gravity model, Morocco under-imported from the EU by about 50 percent in the mid 1990s compared to (a statistically insignificant) underperformance of about 20 percent at the end of the period. 23 Interestingly, the greatest improvement came after the entry into force of the AAEU. Hence, any potential adverse effects from increased effective protection appear to have been more than offset by the positive impact of the overall liberalization efforts.
33. Morocco’s exports also seem to have benefited from the integration efforts with the EU. After having controlled for GDP and population growth, and changes in the share of agriculture in GDP, Morocco’s exports to the EU are estimated to have increased by about 9 percent since the mid 1990s. 24 This indicates that there are Moroccan exporters competitive enough to penetrate the European market, despite a gradual appreciation of the real effective exchange rate, which started to be reversed in 2001. Limited EU concessions given to Moroccan agriculture products and fish may have contributed to the improved export performance.
34. Trade diversion does not emerge as a major concern. For the Mediterranean countries as a group, imports from third party countries increased from a 40 percent underperformance prior to the AAEU to a normal level in the last period. 25 Accordingly, the potential harm from the discriminatory aspect of the trade liberalization with the EU appears limited. 26 There are signs of export diversion, with exports to third party partners declining by some 9 percent relative to the predicted value in the latter half of the studied period, incidentally corresponding to Morocco’s export creation with the EU. This indicates that at least part of the gross export creation with the EU is merely a dislocation of exports initially going elsewhere.
35. The desired increase in intraregional trade has yet to take hold, although the level is not statistically different from the “normal” level. This outcome is not surprising, given that the liberalization efforts so far have been primarily bilateral between the EU and Mediterranean countries. Different rules of origin, weaknesses and inefficiencies in customs administration (less of a concern in Morocco, which has made great progress in this area, and currently clears goods through customs in a matter of hours or less), and the closure of the Morocco-Algeria border have contributed to hamper intraregional trade creation.
C. Conclusions
36. This analysis produces three main conclusions:
There is evidence of EU-Moroccan trade creation from the Barcelona process, and this is likely to be reinforced in the medium term. Both Morocco’s exports and imports appear to have benefited from the integration with the EU, despite the increase in effective protection following the implementation of the AAEU. Given that the latter effect will be gradually eliminated, the remaining slack in the imports level can be expected to vanish.
For the Mediterranean region, the gravity model does not detect any evidence of import diversion from the Barcelona process. This apparent lack of negative effects from the Barcelona process will have to be re-evaluated over time, as more data become available. Moreover, evidence of export diversion indicates that part of the observed gross EU export creation is simply a reorientation of exports originally directed to third party countries.
The Barcelona process has not yet resulted in increased intraregional trade, thereby restricting the potential gains from the integration process.
37. In view of these conclusions, Morocco’s trade liberalization efforts in the context of the AAEU appear appropriate, and could even be accelerated. Clearly, it is desirable to accompany these efforts by broader multilateral trade liberalization to avoid complicating customs administration and to promote trade creation with other regions. However, given the enhanced trade opportunities deriving from a deepened integration with the EU combined with the apparent absence of import diversion, multilateral trade liberalization should not, at this point, be considered a precondition.
38. The absence of intraregional trade creation could raise concerns about potential “hub and spoke” effects. In this regard, the ongoing efforts to harmonize rules of origin and allow for accumulation of origins among Mediterranean countries are important. In addition, the signing of a free trade agreement between Egypt, Jordan, Morocco, and Tunisia, and of another between Morocco and Turkey are steps in the right direction.
39. As an auxiliary point, the analysis also indicates the importance of the quality of institutions for effective trade integration. The rule of law and absence of corruption emerge as important determinants for successful trade promotion. Clearly, the benefits from trade reform will depend on the investment environment. In this regard, Morocco is encouraged to pursue its ongoing efforts to improve its institutions, especially through judicial reform and measures to improve governance and transparency.
APPENDIX II
Morocco: Estimated Results from the Gravity Model, Excluding Regional Trade Dummies 1/
Estimated using heteroscedasticity consistent standard errors, ***, **, *, # indicate statistical significance at the 1, 5, 10, and 15 percent level, respectively. All variables are in logs except indices for rule of law, control of corruption and trade restrictiveness.
Dummies take the value one or zero, except the dummy for landlocked countries which takes the value one if one of the partner countries is landlocked, two if both are landlocked, and zero otherwise.
Exporting country.
Importing country.
Morocco: Estimated Results from the Gravity Model, Excluding Regional Trade Dummies 1/
| 1991–93 | 1994–96 | 1997–99 | 1999–2002 | 1997–99 | 2000–2002 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| GDP importing country | 1.36 | *** | 1.31 | *** | 1.24 | *** | 1.17 | *** | 1.04 | *** | 0.88 | *** |
| GDP exporting country | 1.45 | *** | 1.36 | *** | 1.28 | *** | 1.28 | *** | 1.31 | *** | 1.30 | *** |
| Population importing country | -0.21 | *** | -0.21 | *** | -0.19 | *** | -0.09 | *** | 0.08 | # | 0.23 | *** |
| Population exporting country | -0.24 | *** | -0.13 | *** | -0.04 | -0.05 | # | -0.07 | * | -0.06 | * | |
| Distance | -1.44 | *** | -1.46 | *** | -1.35 | *** | -1.33 | *** | -1.35 | *** | -1.35 | *** |
| Common language | 1.16 | *** | 1.23 | *** | 1.07 | *** | 1.00 | *** | 1.06 | *** | 0.99 | *** |
| Common border | 0.97 | *** | 1.02 | *** | 0.88 | *** | 1.03 | *** | 0.89 | *** | 1.11 | *** |
| Landlocked 2/ | -0.32 | *** | -0.29 | *** | -0.30 | *** | -0.28 | *** | -0.30 | *** | -0.35 | *** |
| Agricultural share of GDP 3/ | -0.08 | -0.16 | *** | -0.17 | *** | -0.16 | *** | -0.17 | *** | -0.17 | *** | |
| Commodity exporter | -0.52 | *** | -0.12 | -0.24 | *** | -0.38 | *** | -0.22 | ** | -0.37 | *** | |
| Rule of law 4/ | 0.01 | 0.07 | ** | |||||||||
| Control of corruption 4/ | 0.35 | *** | 0.45 | *** | ||||||||
| Trade restrictiveness 4/ | -0.08 | *** | -0.06 | *** | ||||||||
| EU-Mediterranean trade | ||||||||||||
| Morocco imports | -0.54 | *** | -0.67 | *** | -0.53 | *** | -0.22 | -0.38 | * | -0.24 | ||
| Morocco exports | -0.32 | * | -0.43 | ** | -0.38 | * | -0.34 | * | -0.42 | *** | -0.55 | * |
| Algeria imports | -0.73 | *** | -0.36 | * | -0.42 | ** | -0.49 | *** | 0.01 | -0.17 | ||
| Algeria export | -0.26 | -0.29 | -0.44 | -0.45 | -0.37 | -0.72 | ||||||
| Tunisia imports | 0.04 | 0.06 | -0.06 | 0.04 | 0.21 | 0.01 | ||||||
| Tunisia exports | -0.12 | -0.04 | 0.02 | -0.15 | -0.06 | -0.44 | ||||||
| Egypt imports | -0.34 | -0.43 | # | -0.51 | ** | -0.66 | *** | -0.34 | -0.48 | |||
| Egypt exports | -0.72 | * | -0.83 | ** | -1.39 | * | -1.43 | *** | -1.37 | *** | -1.53 | ** |
| Syria imports | 0.11 | -0.01 | -0.25 | # | -0.07 | 0.27 | 0.26 | |||||
| Syria exports | -0.03 | -0.01 | -0.12 | 0.39 | -0.23 | 0.12 | ||||||
| Jordan imports | 0.90 | *** | 0.69 | *** | 0.50 | *** | 0.50 | *** | 0.71 | *** | 0.57 | *** |
| Jordan exports | -1.80 | *** | -1.45 | *** | -1.35 | *** | -1.49 | *** | -1.34 | *** | -1.71 | *** |
| Other Mediterranean trade | ||||||||||||
| Imports from other | -0.17 | -0.30 | -0.50 | *** | 0.03 | -0.14 | 0.22 | # | ||||
| Exports to other | -1.13 | *** | -1.15 | *** | -1.16 | *** | -1.24 | *** | -1.28 | *** | -1.27 | *** |
| Intra-Mediterranean | 0.28 | -0.06 | -0.22 | -0.06 | 0.15 | 0.11 | ||||||
| Constant | 4.07 | *** | 4.59 | *** | 3.97 | *** | 3.91 | *** | 4.25 | *** | 4.40 | *** |
| Number of observations | 5,548 | 6,264 | 6,321 | 6,419 | 5,261 | 6,044 | ||||||
| R-squared | 0.64 | 0.69 | 0.67 | 0.66 | 0.69 | 0.67 | ||||||
Estimated using heteroscedasticity consistent standard errors, ***, **, *, # indicate statistical significance at the 1, 5, 10, and 15 percent level, respectively. All variables are in logs except indices for rule of law, control of corruption and trade restrictiveness.
Dummies take the value one or zero, except the dummy for landlocked countries which takes the value one if one of the partner countries is landlocked, two if both are landlocked, and zero otherwise.
Exporting country.
Importing country.
Morocco: Estimated Results from the Gravity Model, Excluding Regional Trade Dummies 1/
| 1991–93 | 1994–96 | 1997–99 | 1999–2002 | 1997–99 | 2000–2002 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| GDP importing country | 1.36 | *** | 1.31 | *** | 1.24 | *** | 1.17 | *** | 1.04 | *** | 0.88 | *** |
| GDP exporting country | 1.45 | *** | 1.36 | *** | 1.28 | *** | 1.28 | *** | 1.31 | *** | 1.30 | *** |
| Population importing country | -0.21 | *** | -0.21 | *** | -0.19 | *** | -0.09 | *** | 0.08 | # | 0.23 | *** |
| Population exporting country | -0.24 | *** | -0.13 | *** | -0.04 | -0.05 | # | -0.07 | * | -0.06 | * | |
| Distance | -1.44 | *** | -1.46 | *** | -1.35 | *** | -1.33 | *** | -1.35 | *** | -1.35 | *** |
| Common language | 1.16 | *** | 1.23 | *** | 1.07 | *** | 1.00 | *** | 1.06 | *** | 0.99 | *** |
| Common border | 0.97 | *** | 1.02 | *** | 0.88 | *** | 1.03 | *** | 0.89 | *** | 1.11 | *** |
| Landlocked 2/ | -0.32 | *** | -0.29 | *** | -0.30 | *** | -0.28 | *** | -0.30 | *** | -0.35 | *** |
| Agricultural share of GDP 3/ | -0.08 | -0.16 | *** | -0.17 | *** | -0.16 | *** | -0.17 | *** | -0.17 | *** | |
| Commodity exporter | -0.52 | *** | -0.12 | -0.24 | *** | -0.38 | *** | -0.22 | ** | -0.37 | *** | |
| Rule of law 4/ | 0.01 | 0.07 | ** | |||||||||
| Control of corruption 4/ | 0.35 | *** | 0.45 | *** | ||||||||
| Trade restrictiveness 4/ | -0.08 | *** | -0.06 | *** | ||||||||
| EU-Mediterranean trade | ||||||||||||
| Morocco imports | -0.54 | *** | -0.67 | *** | -0.53 | *** | -0.22 | -0.38 | * | -0.24 | ||
| Morocco exports | -0.32 | * | -0.43 | ** | -0.38 | * | -0.34 | * | -0.42 | *** | -0.55 | * |
| Algeria imports | -0.73 | *** | -0.36 | * | -0.42 | ** | -0.49 | *** | 0.01 | -0.17 | ||
| Algeria export | -0.26 | -0.29 | -0.44 | -0.45 | -0.37 | -0.72 | ||||||
| Tunisia imports | 0.04 | 0.06 | -0.06 | 0.04 | 0.21 | 0.01 | ||||||
| Tunisia exports | -0.12 | -0.04 | 0.02 | -0.15 | -0.06 | -0.44 | ||||||
| Egypt imports | -0.34 | -0.43 | # | -0.51 | ** | -0.66 | *** | -0.34 | -0.48 | |||
| Egypt exports | -0.72 | * | -0.83 | ** | -1.39 | * | -1.43 | *** | -1.37 | *** | -1.53 | ** |
| Syria imports | 0.11 | -0.01 | -0.25 | # | -0.07 | 0.27 | 0.26 | |||||
| Syria exports | -0.03 | -0.01 | -0.12 | 0.39 | -0.23 | 0.12 | ||||||
| Jordan imports | 0.90 | *** | 0.69 | *** | 0.50 | *** | 0.50 | *** | 0.71 | *** | 0.57 | *** |
| Jordan exports | -1.80 | *** | -1.45 | *** | -1.35 | *** | -1.49 | *** | -1.34 | *** | -1.71 | *** |
| Other Mediterranean trade | ||||||||||||
| Imports from other | -0.17 | -0.30 | -0.50 | *** | 0.03 | -0.14 | 0.22 | # | ||||
| Exports to other | -1.13 | *** | -1.15 | *** | -1.16 | *** | -1.24 | *** | -1.28 | *** | -1.27 | *** |
| Intra-Mediterranean | 0.28 | -0.06 | -0.22 | -0.06 | 0.15 | 0.11 | ||||||
| Constant | 4.07 | *** | 4.59 | *** | 3.97 | *** | 3.91 | *** | 4.25 | *** | 4.40 | *** |
| Number of observations | 5,548 | 6,264 | 6,321 | 6,419 | 5,261 | 6,044 | ||||||
| R-squared | 0.64 | 0.69 | 0.67 | 0.66 | 0.69 | 0.67 | ||||||
Estimated using heteroscedasticity consistent standard errors, ***, **, *, # indicate statistical significance at the 1, 5, 10, and 15 percent level, respectively. All variables are in logs except indices for rule of law, control of corruption and trade restrictiveness.
Dummies take the value one or zero, except the dummy for landlocked countries which takes the value one if one of the partner countries is landlocked, two if both are landlocked, and zero otherwise.
Exporting country.
Importing country.
Morocco: Gravity Model Estimations with Regional Trade Dummies 1/
Estimated using heteroscedasticity consistent standard errors, ***, **, *, # indicate statistical significance at the 1, 5, 10, and 15 percent level, respectively. All variables are in logs except indices for rule of law, control of corruption and trade restrictiveness.
Dummies take the value one or zero, except the dummy for landlocked countries which takes the value one if one of the partner countries is landlocked, two if both are landlocked, and zero otherwise.
Exporting country.
Importing country.
Morocco: Gravity Model Estimations with Regional Trade Dummies 1/
| 1991–93 | 1994–96 | 1997–99 | 1999–2002 | 1997–99 | 2000–2002 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| GDP importing country | 1.17 | *** | 1.27 | *** | 1.23 | *** | 1.11 | *** | 1.18 | *** | 0.97 | *** |
| GDP exporting country | 1.34 | *** | 1.39 | *** | 1.41 | *** | 1.34 | *** | 1.41 | *** | 1.38 | *** |
| Population importing country | -0.26 | *** | -0.29 | *** | -0.31 | *** | -0.20 | *** | -0.16 | *** | -0.02 | |
| Population exporting country | -0.29 | *** | -0.27 | *** | -0.27 | *** | -0.23 | *** | -0.25 | *** | -0.25 | *** |
| Distance | -1.61 | *** | -1.42 | *** | -1.25 | *** | -1.18 | *** | -1.23 | *** | -1.17 | *** |
| Common language | 0.84 | *** | 0.83 | *** | 0.65 | *** | 0.66 | *** | 0.75 | *** | 0.69 | *** |
| Common border | 0.89 | *** | 1.04 | *** | 0.98 | *** | 1.19 | *** | 0.98 | *** | 1.25 | *** |
| Landlocked 2/ | -0.41 | *** | -0.23 | *** | -0.31 | *** | -0.36 | *** | -0.26 | *** | -0.37 | *** |
| Agricultural share of GDP 3/ | -0.03 | -0.06 | 0.02 | -0.01 | -0.02 | -0.01 | ||||||
| Commodity exporter | -0.01 | 0.03 | 0.03 | -0.06 | 0.01 | -0.08 | ||||||
| Rule of law 4/ | 0.00 | 0.06 | ||||||||||
| Control of corruption 4/ | 0.15 | *** | 0.24 | *** | ||||||||
| Trade restrictiveness 4/ | -0.07 | *** | -0.05 | *** | ||||||||
| EU-Mediterranean trade | ||||||||||||
| Morocco imports | -0.18 | -0.51 | *** | 0.02 | *** | 0.59 | *** | 0.07 | 0.51 | ** | ||
| Morocco exports | 0.18 | -0.23 | 0.24 | 0.55 | *** | 0.07 | 0.23 | |||||
| Algeria imports | -0.27 | -0.24 | 0.07 | 0.30 | # | 0.24 | 0.35 | * | ||||
| Algeria export | 0.29 | -0.10 | 0.15 | 0.43 | 0.11 | 0.06 | ||||||
| Tunisia imports | 0.15 | 0.06 | 0.30 | # | 0.68 | *** | 0.49 | ** | 0.61 | *** | ||
| Tunisia exports | 0.18 | 0.02 | 0.47 | * | 0.59 | * | 0.31 | 0.22 | ||||
| Egypt imports | 0.29 | -0.11 | 0.20 | 0.33 | * | 0.18 | 0.31 | # | ||||
| Egypt exports | 0.00 | -0.47 | -0.65 | ** | -0.46 | # | -0.82 | *** | -0.69 | ** | ||
| Syria imports | 0.31 | * | 0.01 | 0.12 | 0.56 | *** | 0.49 | ** | 0.69 | *** | ||
| Syria exports | -0.16 | -0.14 | 0.02 | 0.74 | -0.13 | 0.42 | ||||||
| Jordan imports | 0.92 | *** | 0.66 | *** | 0.80 | *** | 1.02 | *** | 0.94 | *** | 0.98 | *** |
| Jordan exports | -1.47 | *** | -1.28 | *** | -0.63 | * | -0.55 | ** | -0.78 | ** | -0.85 | *** |
| Other Mediterranean trade | ||||||||||||
| Imports from other | 0.76 | *** | 0.30 | # | 0.36 | ** | 1.12 | *** | 0.51 | *** | 1.08 | *** |
| Exports to other | -0.13 | -0.58 | *** | -0.29 | * | -0.13 | -0.59 | *** | -0.36 | ** | ||
| Intra-Mediterranean | 1.11 | *** | 0.31 | 0.40 | # | 0.77 | *** | 0.58 | ** | 0.66 | *** | |
| Regional trade dummies | ||||||||||||
| Middle east and North Africa | -1.23 | *** | -1.05 | *** | -1.48 | *** | -1.76 | *** | -1.22 | *** | -1.57 | *** |
| Sub-Saharan Africa | -0.84 | *** | -0.65 | *** | -0.77 | *** | -0.94 | *** | -0.70 | *** | -0.99 | *** |
| Asia | 1.15 | *** | 0.28 | * | 0.25 | * | 0.33 | ** | 0.16 | ** | 0.24 | # |
| EU | 0.24 | *** | 0.50 | *** | 0.40 | *** | 0.44 | *** | 0.52 | *** | 0.46 | *** |
| Latin America | -0.56 | *** | -0.96 | *** | -1.23 | *** | -1.28 | *** | -1.03 | *** | -1.27 | *** |
| European Developing | -0.65 | *** | -1.11 | *** | -1.06 | *** | -0.86 | *** | -0.90 | *** | -0.86 | *** |
| Industrial non-EU | 0.51 | *** | -0.55 | *** | -0.68 | *** | -0.59 | *** | -0.75 | *** | -0.76 | *** |
| Constant | 7.01 | *** | 5.72 | *** | 4.69 | *** | 4.55 | *** | 4.46 | *** | 4.64 | *** |
| Number of observations | 5,548 | 6,264 | 6,321 | 6,419 | 5,261 | 6,044 | ||||||
| R-squared | 0.68 | 0.71 | 0.70 | 0.69 | 0.70 | 0.69 | ||||||
Estimated using heteroscedasticity consistent standard errors, ***, **, *, # indicate statistical significance at the 1, 5, 10, and 15 percent level, respectively. All variables are in logs except indices for rule of law, control of corruption and trade restrictiveness.
Dummies take the value one or zero, except the dummy for landlocked countries which takes the value one if one of the partner countries is landlocked, two if both are landlocked, and zero otherwise.
Exporting country.
Importing country.
Morocco: Gravity Model Estimations with Regional Trade Dummies 1/
| 1991–93 | 1994–96 | 1997–99 | 1999–2002 | 1997–99 | 2000–2002 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| GDP importing country | 1.17 | *** | 1.27 | *** | 1.23 | *** | 1.11 | *** | 1.18 | *** | 0.97 | *** |
| GDP exporting country | 1.34 | *** | 1.39 | *** | 1.41 | *** | 1.34 | *** | 1.41 | *** | 1.38 | *** |
| Population importing country | -0.26 | *** | -0.29 | *** | -0.31 | *** | -0.20 | *** | -0.16 | *** | -0.02 | |
| Population exporting country | -0.29 | *** | -0.27 | *** | -0.27 | *** | -0.23 | *** | -0.25 | *** | -0.25 | *** |
| Distance | -1.61 | *** | -1.42 | *** | -1.25 | *** | -1.18 | *** | -1.23 | *** | -1.17 | *** |
| Common language | 0.84 | *** | 0.83 | *** | 0.65 | *** | 0.66 | *** | 0.75 | *** | 0.69 | *** |
| Common border | 0.89 | *** | 1.04 | *** | 0.98 | *** | 1.19 | *** | 0.98 | *** | 1.25 | *** |
| Landlocked 2/ | -0.41 | *** | -0.23 | *** | -0.31 | *** | -0.36 | *** | -0.26 | *** | -0.37 | *** |
| Agricultural share of GDP 3/ | -0.03 | -0.06 | 0.02 | -0.01 | -0.02 | -0.01 | ||||||
| Commodity exporter | -0.01 | 0.03 | 0.03 | -0.06 | 0.01 | -0.08 | ||||||
| Rule of law 4/ | 0.00 | 0.06 | ||||||||||
| Control of corruption 4/ | 0.15 | *** | 0.24 | *** | ||||||||
| Trade restrictiveness 4/ | -0.07 | *** | -0.05 | *** | ||||||||
| EU-Mediterranean trade | ||||||||||||
| Morocco imports | -0.18 | -0.51 | *** | 0.02 | *** | 0.59 | *** | 0.07 | 0.51 | ** | ||
| Morocco exports | 0.18 | -0.23 | 0.24 | 0.55 | *** | 0.07 | 0.23 | |||||
| Algeria imports | -0.27 | -0.24 | 0.07 | 0.30 | # | 0.24 | 0.35 | * | ||||
| Algeria export | 0.29 | -0.10 | 0.15 | 0.43 | 0.11 | 0.06 | ||||||
| Tunisia imports | 0.15 | 0.06 | 0.30 | # | 0.68 | *** | 0.49 | ** | 0.61 | *** | ||
| Tunisia exports | 0.18 | 0.02 | 0.47 | * | 0.59 | * | 0.31 | 0.22 | ||||
| Egypt imports | 0.29 | -0.11 | 0.20 | 0.33 | * | 0.18 | 0.31 | # | ||||
| Egypt exports | 0.00 | -0.47 | -0.65 | ** | -0.46 | # | -0.82 | *** | -0.69 | ** | ||
| Syria imports | 0.31 | * | 0.01 | 0.12 | 0.56 | *** | 0.49 | ** | 0.69 | *** | ||
| Syria exports | -0.16 | -0.14 | 0.02 | 0.74 | -0.13 | 0.42 | ||||||
| Jordan imports | 0.92 | *** | 0.66 | *** | 0.80 | *** | 1.02 | *** | 0.94 | *** | 0.98 | *** |
| Jordan exports | -1.47 | *** | -1.28 | *** | -0.63 | * | -0.55 | ** | -0.78 | ** | -0.85 | *** |
| Other Mediterranean trade | ||||||||||||
| Imports from other | 0.76 | *** | 0.30 | # | 0.36 | ** | 1.12 | *** | 0.51 | *** | 1.08 | *** |
| Exports to other | -0.13 | -0.58 | *** | -0.29 | * | -0.13 | -0.59 | *** | -0.36 | ** | ||
| Intra-Mediterranean | 1.11 | *** | 0.31 | 0.40 | # | 0.77 | *** | 0.58 | ** | 0.66 | *** | |
| Regional trade dummies | ||||||||||||
| Middle east and North Africa | -1.23 | *** | -1.05 | *** | -1.48 | *** | -1.76 | *** | -1.22 | *** | -1.57 | *** |
| Sub-Saharan Africa | -0.84 | *** | -0.65 | *** | -0.77 | *** | -0.94 | *** | -0.70 | *** | -0.99 | *** |
| Asia | 1.15 | *** | 0.28 | * | 0.25 | * | 0.33 | ** | 0.16 | ** | 0.24 | # |
| EU | 0.24 | *** | 0.50 | *** | 0.40 | *** | 0.44 | *** | 0.52 | *** | 0.46 | *** |
| Latin America | -0.56 | *** | -0.96 | *** | -1.23 | *** | -1.28 | *** | -1.03 | *** | -1.27 | *** |
| European Developing | -0.65 | *** | -1.11 | *** | -1.06 | *** | -0.86 | *** | -0.90 | *** | -0.86 | *** |
| Industrial non-EU | 0.51 | *** | -0.55 | *** | -0.68 | *** | -0.59 | *** | -0.75 | *** | -0.76 | *** |
| Constant | 7.01 | *** | 5.72 | *** | 4.69 | *** | 4.55 | *** | 4.46 | *** | 4.64 | *** |
| Number of observations | 5,548 | 6,264 | 6,321 | 6,419 | 5,261 | 6,044 | ||||||
| R-squared | 0.68 | 0.71 | 0.70 | 0.69 | 0.70 | 0.69 | ||||||
Estimated using heteroscedasticity consistent standard errors, ***, **, *, # indicate statistical significance at the 1, 5, 10, and 15 percent level, respectively. All variables are in logs except indices for rule of law, control of corruption and trade restrictiveness.
Dummies take the value one or zero, except the dummy for landlocked countries which takes the value one if one of the partner countries is landlocked, two if both are landlocked, and zero otherwise.
Exporting country.
Importing country.
EstimatedRegional Trade Effects
Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A002
Source: IMF staff estimates (see Table 2).EstimatedRegional Trade Effects
Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A002
Source: IMF staff estimates (see Table 2).EstimatedRegional Trade Effects
Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A002
Source: IMF staff estimates (see Table 2).Prepared by Ludvig Söderling. Research assistance was contributed by Tea Trumbic.
Morocco is also undertaking other trade liberalization efforts, but their impact will largely be felt in the future. A free trade agreement was recently signed with the United States, another with Tunisia, Egypt and Jordan, and yet another with Turkey. Morocco has also recently reduced and simplified the tariff protection vis-à-vis Most Favored Nation (MFN) countries.
An AAEU came into force with Israel in 2000, and with Jordan in 2002. Egypt signed an agreement in 2001, and Lebanon and Algeria in 2002 (all await ratification). Negotiations were concluded with Syria in 2003. All aforementioned countries signed cooperation agreements in the mid-1970s. Cyprus, Malta (to become EU members in 2004) and Turkey (an EU customs union partner) concluded first generation association agreements with the European Community in the 1960s and early 1970s.
The dummy for landlocked countries takes the value 1 if one of the countries is landlocked, 2 if both are, and zero otherwise. All other dummies take the value 1 or zero.
Moreover, for a given level of GDP, a large population indicates a low level of economic development and hence generally a low export capacity. It has, however, occasionally been argued that that a large population allows for scale effects and a more efficient division of labor and would therefore affect trade positively.
The UN’s COMTRADE database does provide information on trade by major product group. Exploiting this could be useful for further research.
Mediterranean countries are Algeria, Egypt, Jordan, Morocco, Syria, and Tunisia. Lebanon and the Palestinian Authority are excluded due to incomplete data.
For example trade liberalization under the auspices of the World Trade Organization (WTO) has had an uneven impact on developing and industrial countries, and on countries with different economic structure (see Subramanian, A. and S. Wei, 2003, “The WTO Promotes Trade, Strongly but Unevenly, IMF Working Paper,” WP/03/185 (Washington: International Monetary Fund, 2003).
The trade restrictiveness index is a composite index, calculated by the IMF and takes into account both tariff and nontariff barriers. The governance variables are described in detail at http://www.worldbank.org/wbi/governance/pubs/govmatters3.html.
In what follows, the discussion will be based on the model excluding regional dummies.
Underperformance is here defined as the difference between actual and “normal” imports as a percentage of the normal level, or e-0.67-1 = 0.5.
This corresponds to the change in the point estimate of the dummy variable for Moroccan exports to the EU. It deserves to be mentioned that while the estimated coefficients were significant at the 10 percent level, the change itself is not statistically significant. Similar observations apply to most other estimated geographical dummy coefficients.
To avoid multiplication of dummies, the trade diversion effect is examined only for the Mediterranean countries as a group.
In the case of Morocco, the value of non-EU imports remained broadly stable between 1999 and 2002, while EU imports grew substantially. Although this, in itself, is not an indication of trade diversion, it merits monitoring.
