Morocco: Selected Issues
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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.

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.

III. On The Long-Term Determinants Of Workers’ Remittances In Morocco27

A. Introduction

40. Transfers from Moroccans living abroad play an important role in the current strength of Morocco’s external position and have a significant impact on the balance of payments and the conduct of monetary policy. Workers’ remittances in Morocco now stand at about 9 percent of GDP, up from an average of 5 percent per year before 2000 (Figure 1). They almost offset the trade deficit, and strongly contribute to the current account and overall balance of payments (BOP) surpluses (Table 1). The accumulation of these surpluses over the recent years have allowed Morocco to build external reserves, which now cover external public debt. The remittances also effect liquidity conditions in the banking system, and, therefore, affect the conduct of monetary policy.

Figure 1.
Figure 1.

Workers’ Remittances

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A003

Sources: Moroccan authorities; and IMF staff estimates.
Table 1.

Morocco: Balance of Payments (1996-2003)

article image
Sources: Moroccan authorities and IMF Staff estimates

41. Any analysis of the long-term sustainability of Morocco’s external position requires a good understanding of the behavior of workers’ remittances and their longrun determinants. This study tries to achieve this goal by developing a theoretical framework to guide the empirical analysis. Some potential explanatory factors, prompted by the discussions that the mission had with the authorities, are considered. They include “altruism”, which could be captured by the relation of remittances to wages in Morocco, “attachment to homeland,” as partly captured by the construction of real estate in Morocco by Moroccans living abroad, and economic growth in countries where remittances originate. The authorities also indicated that parts of these transfers are made by Moroccans willing to develop small and medium-size enterprises in their homeland. However, they recognize that transfers related to such motives remain very small. Nonetheless, in order to keep the study as comprehensive as possible, and not impose any restriction a priori on the model, interest rates in Morocco and abroad were also added in order to assess whether such transfers could partly reflect portfolio diversification, which could help capture transfers driven by investment motives. In addition to these determinants, there could be qualitative factors related to the authorities’ policies toward Moroccans living abroad. Various policy measures essentially related to administrative procedures have been put in place to keep Moroccans living abroad attracted to their home country. These have not been taken into account in this study.

42. The empirical evidence confirms that altruism or solidarity, “attachment to homeland” and economic growth in the countries of residence could indeed be the main long-run determinants of workers’ remittances in Morocco. The evidence suggests that in the long-run, the elasticity of remittances with respect to Moroccan real GDP, which is used as a proxy for real incomes, is negative, holding everything else constant. This suggests that there could be altruistic or solidarity motives behind workers’ remittances in Morocco. The elasticity of remittances with respect to wages in the countries where they originate is positive. This finding is consistent with the hypothesis that altruistic motives could in fact be behind remittances, since these motives could be seen as a sign of a willingness to “share”. The evidence also suggests that remittances are positively correlated with construction GDP. This result is in line with the great deal of construction of real estate in Morocco by Moroccans living abroad, which could be a sign of their “attachment to their homeland.” There is no evidence that motives for portfolio diversification are significant among the longrun explanatory factors. This finding potentially reduces the risks of a sudden end or reversal of transfers from Moroccans living abroad. However, the evidence also suggests that Morocco could further attract remittance inflows through investment. To this end, a faster implementation of the authorities’ structural reform agenda could be essential.

43. The paper is organized as follows. Section II below discusses the evolution of remittances in Morocco, including their main characteristics and their impact on the balance of payments and the conduct of monetary policy. Section III discusses the potential determinants of workers’ remittances in general and presents the long-run relation suggested by the empirical evidence. Conclusions and policy implications are provided in Section IV. The appendices present the theoretical foundation behind the empirical analysis, as well as a brief summary of the econometric techniques used.

B. Workers’ Remittances In Morocco

44. The evolution of workers remittances in Morocco is mainly characterized by a sudden surge in 2000,28 which is not yet fully explained (Figure 1). Since then, their level has remained high compared to other countries, at about 9 percent of GDP and about 25 percent of exports of goods and services. For example, in percent of GDP, they are 3 percent in Egypt, 1 percent in Turkey, 5 percent in Tunisia and 18 percent in Jordan. In percent of exports of goods and services, they are 16 percent in Egypt, 3 percent in Turkey, 13 percent in Tunisia, 42 percent in Jordan. Remittances in Morocco mostly originate from Europe, especially France and to some extent Spain.

45. Transfers are made partly through the banking system but also through postal and other money-transfer services (Figure 1). The authorities indicated that a significant share of transfers is made in cash, especially when Moroccans living abroad travel to their home country. This share is estimated through foreign currency exchanges that are made at the central bank or at other foreign exchange providers, and is included in the estimate of total transfers.

46. The impact of workers’ remittances on Morocco’s external position and the conduct of monetary policy is significant. The remittances almost cover the trade deficit and have contributed to the recent surpluses of the external current account, as well as the overall balance of payments (BOP) (Table 1). The BOP surpluses have contributed to the strengthening of Morocco’s external position through the accumulation of reserves, which now cover the external public debt. The transfers also contribute to the liquidity of the banking system and affect the conduct of monetary policy as evidenced by the recent policy measures taken by Bank Al Maghrib (BAM) to absorb that liquidity. 29 Therefore, understanding the long-run behavior of workers’ remittances will be essential to both the long-term sustainability of Morocco’s external position and the conduct of monetary policy.

C. Potential Long-Run Determinants Of Workers’ Remittances

47. In this section, first the existing literature on remittances is briefly presented. Then the potential long-run explanatory factors behind the evolution of workers’ remittances in Morocco are discussed. Subsequently, the long-run relation between the remittances and their potential determinants, as derived from a theoretical framework, is estimated. The relative importance of each of those determinants could have an implication on the long-run behavior of the level of remittances.

Discussion

48. The literature on remittances can be divided in two segments, one focusing on the causes and uses of remittances, and the other on the macroeconomic impact of remittances. 30 The first segment emphasizes the role of altruism and family ties as a motivation for remittances. 31 However, some other theories have focused on the idea that there can be selfinterested reasons for remitting as well, which nevertheless center on the family. 32 The family can also be thought of as playing the role of an insurance company that provides members with protection against income shocks by diversifying the sources of income. 33 The family can also function as a bank that finances migration for some members. The borrowers remit funds in order to repay the loans. 34 Nonetheless, Chami and Fisher (1996) argue that these arrangements may not be as self-interested as they may appear and show that altruism can lead to risk-sharing arrangements that are self-enforcing. Other authors have examined the possibility of portfolio-investment motives behind remittances. 35 Regarding the macroeconomic impact of remittances in the recipient countries, the literature tends to emphasize the point that remittances increase family consumption and are not invested in productive assets,36 with the possible exception of real estate. In addition, others suggest that remittances, even when they are invested in productive assets, can have Keynesian multiplier effects on the economy, which nonetheless will remain of a short-term nature. 37 Finally, evidence suggests that remittances can be detrimental to long-run growth by lowering laborforce participation. 38 With the above in mind, the following section will discuss the potential causes of remittances in the specific case of Morocco and examine what they could imply for Morocco’s long-term prospects.

49. Altruism or solidarity motives as a determinant of workers’ remittances in Morocco could contribute to their stability in the long-run, mainly because it seems reasonable to expect such motives to remain stable. 39 However, the stability of such motives should also be seen in the context of changes in migration patterns. For instance, the migration of family members may reduce the scope for “altruistic” motives. Nonetheless, in the case of Morocco, this effect would be counterbalanced by the new waves of immigrants who are attracted by the increasing labor demand in industrialized countries. Moreover, altruistic motives for remittances may in fact partly reflect self-interested reasons for transfers from Moroccans who want their residential investments to be looked after when they are away. Therefore, “altruistic” flows could be thought of as being fairly stable. Evidence of altruism can be captured by a negative long-run correlation of remittances with wages in the home country. 40 In the specific case of Morocco, one would expect altruism to be evidenced by a negative correlation between transfers and real GDP in Morocco. An additional indicator that could be considered is income in the country of residence. A positive correlation between income in the country of residence and transfers, holding everything else constant, could also be seen as an indication of altruism or solidarity, since it would suggest a willingness to “share.”

50. “Attachment to homeland” could also contribute to the stability of remittances in the long run, since one would expect such motives to remain stable. However, improved settlement opportunities for Moroccans in their countries of residence may in theory reduce their attachment to Morocco. Nonetheless these improvements in settlement opportunities could be expected to occur at a slow pace, therefore having in a foreseeable future, only a limited offsetting impact on Moroccans’ attachment to their homeland. Attachment to the homeland could be assessed with the construction of real estate in Morocco by Moroccans living abroad or any other asset that could reflect their ties to Morocco. Therefore, the value added of the construction sector would then be a natural candidate for a proxy of Moroccans’ attachment to their homeland. One would then expect remittances to be positively correlated with construction GDP. Construction of real estate could also be seen as an investment decision based on profitability considerations. However, the evidence on housing prices (Figure 2) would not support such an explanation in the case of Morocco.

Figure 2.
Figure 2.

Housing Prices and Effective Exchange Rates

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A003

Sources: Moroccan authorities; and IMF staff estimates.

51. Remittances as portfolio investment flows could be expected to add to a country’s vulnerability since one would expect them to be sensitive to their rate of return. A small part of remittances are made by Moroccans who are willing to create small and medium-sized enterprises in Morocco. This is a direct investment flow that could also be interpreted as a sign of their attachment to their home country, and therefore one that is not expected to add to the country’s vulnerability. However, the existence of such investments also implies that remittances, because of their potential investment nature, could be sensitive to their rate of return. If this were true, one would expect deposits held in Morocco by Moroccans living abroad to be positively correlated with interest rates in Morocco and negatively with interest rates abroad.

52. The exchange rate through the “substitution” and “wealth” effects could also influence the level of remittances. The overall effect of exchange rates movements is not always clear a priori because it is the sum of both the “substitution” and “wealth” effects. The idea behind the substitution effect is that because goods in the home country are less expensive with the devaluation or depreciation of the currency, one does not need to transfer as much money as before to buy a given amount of goods, and may even substitute some goods in the home country for the more expensive ones in the country of residence. On the other hand, a devaluation or depreciation of the home country’s exchange rate can also make its citizens living abroad “wealthier”, and therefore give them incentives to transfer more money in order to buy even more goods, including building residential real estate, in the home country, which are now less expensive. This is the “wealth” effect. However, even if the actual effect of exchange rate movements were known, interpreting their long-term impact on the sustainability of the external position would not be certain. 41

53. National policies toward workers living abroad could be an important qualitative determinant for transfers in general. In Morocco, the authorities would like to keep Moroccans living abroad attracted to their home country. To this end, they have created a ministry in charge of Moroccans living abroad (Ministère délégué auprès des affaires étrangères et de la cooperation chargé des Marocains Résidents à l’Etranger), which, among other things, helps streamline the administrative procedures related to their transactions with their home country. The model used in this paper will not take such qualitative items explicitly. However, it is shown in Appendix III how one can capture the effects of such policy measures in theory.

54. The surge of remittances since 2000 could remain unexplained, even after considering the potential explanatory factors discussed above. Since this study is mainly about the long-term determinants of remittances, no analysis of this specific phenomenon will be provided. However, Appendix III presents how in theory such a phenomenon can happen. In addition to the wealth effect of the devaluation discussed above, the model allows one to capture the surge in remittances through an increase in the “attachment” to the home country. Various events in the new post-September 11 environment could support an explanation based on the attachment to the home country.

Empirical examination for Morocco

55. The empirical investigation is based on a theoretical model that is presented in Appendix III, where the implied regression equations are equation 9 for the long-run solution and equation 10 for the short-run one. In the model of workers’ remittances, an altruistic worker, with some degree of “attachment” to her home country maximizes private welfare by allocating her revenue between consumption in the country of residence, family consumption in the home country, acquisition of financial assets in the country of residence, and acquisition of financial and nonfinancial assets, such as real estate, in the home country. The model has some implications that can be estimated. In particular, the model predicts that if workers have some degree of attachment to their home country, then the long-run elasticity between remittances and the acquisition of nonfinancial assets, such as real estate, must be positive. If they are altruistic, the elasticity between remittances and real wages or real GDP in Morocco must be negative, and the elasticity of remittances with respect to wages in their country of residence must be positive. It also predicts that if motives for portfolio diversification are behind workers’ transactions with their home country, then there should be a positive semi-elasticity between workers’ stock of financial assets in the home country and the interest rate differential between the home country and the country of residence, holding the long-run level of remittances constant. This is assets substitution.

Figure 3.
Figure 3.

Potential Long-Run Determinants of Workers’ Remittances

(In logarithm, unless otherwise indicated)

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A003

Sources: Moroccan authorities; International Financial Statistics; and IMF staff estimates

56. An estimate of the co-integration or long-run relation between remittances and their determinants as implied by the model is presented in equation 1. Since the relevant variables implied by the model are non stationary, estimating the model using a standard ordinary least square technique (OLS) could give a spurious regression equation, which could cause misleading inferences. 42 Therefore, a vector autoregression (VAR) is used to test for the existence of a stationary linear combination of the non stationary variables using Johansen(1991) method. Such a linear combination represents the long-run relationship among the variables. One can refer to Figure 6 to see how the VAR fits the data and Table 3 for the misspecification tests. Figure 4 presents deviations of remittances from their (longrun) value as predicted in equation 1. 43

Figure 4.
Figure 4.

Deviation of Remittances from the Long-Run Value as Defined in Equation 1

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A003

Sources: Morocco authorities; and IMF staff estimates.
Figure 5.
Figure 5.

Evolution of Transfers and Some of Their Potential Long-Run Determinants

(In logarithm of variables in French Francs, unless otherwise indicated)

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A003

Sources: Moroccan authorities; and IMF staff estimates.
Figure 6.
Figure 6.

Transfers and Total Deposits and Their Fitted Values (VAR)

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A003

Sources: Moroccan authorities; and IMF staff estimates
R e m i t = a 0 + 1 . 8 * ( W a g e s _ F c e ) - 4 . 2 * G D P + 1 0 * C s t r + 1 9 . 3 * ( E R d h / F F _ E U R ) 0 . 1 * ( I R _ M o r I R _ F c e ) 4 . 5 * D e p ( 1 )

The variables are in logarithms. The coefficient on (IR_Mor – IR_Fce) is a semi-elasticity and other coefficients are (long-run) elasticities, except for the coefficients on (Wages_Fce) and (ERdh/FF_EUR), which nonetheless have the same signs as the actual elasticities as explained below.

a0 is an estimated constant term. A random error term is omitted for brevity (Figure 4).

Remit is the logarithm of remittances in French francs or Euro.

Wages_Fce is the logarithm of wages in France in French francs or in Euro.

GDP is the real GDP in Morocco in dirham.

Cstr is the logarithm of the real value added of the construction sector in Morocco in French francs or in Euro.

ERdh/FF_EUR is the logarithm of the exchange rate dirham per French franc or per Euro.

IR_Mor – IR_Fce is the difference between interest rates in Morocco and France in percent.

Dep is the logarithm of the dirham equivalent of the end-of-period stock of total deposits held in Moroccan bank accounts by Moroccans living abroad.

Empirical results presented in equation 1, are in line with a priori expectations.

57. Remittances may partly be driven by a willingness to share, which would support the argument for altruism as a strong determinant of remittances in Morocco. Wages_Fce is used as a proxy for incomes of Moroccans living abroad, as well as the stock of financial assets they hold in their countries of residence. The logarithm allows one to abstract from the actual levels and focus only on growth and the elasticities. Therefore, taking the logarithm of wages in France assumes that its growth rate is positively correlated to the growth of income and financial assets held by Moroccans living abroad in their country of residence. This assumption seems reasonable since most of the remittances originate from Europe, especially France, Italy, and Spain. As explained in Appendix III with equation 9, the coefficient on Wages_Fce in equation 1 is not the value of the actual elasticity of remittances with respect to wages abroad. However, its positive sign implies that the latter is also positive. The reason why the coefficient is not the wage elasticity stems from the fact that wages in France are also used as a proxy for financial assets held by Moroccans living abroad in their countries of residence. However, the latter are expected to have a negative elasticity because an increase in assets abroad, everything else held constant (including wages and consumption in the country of residence), will tend to reduce remittances to the home country. Therefore, the positive coefficient on wages implies that the wage elasticity is positive, implying a willingness to share.

58. The negative elasticity for GDP provides additional evidence that altruistic or solidarity motives could partly be behind remittances in Morocco. GDP is a proxy for real incomes in Morocco. As implied in the theoretical framework, the negative correlation between remittances and real incomes in the home country, everything else being equal, is an indication that Moroccans living abroad could be taking into account the well-being of their Morocco-based families in their decision-making process.

59. The positive elasticity for Cstr suggests that attachment to one’s homeland may be another strong motive behind the remittances in Morocco. Cstr is a proxy for the volume of real estate construction in Morocco made by Moroccans living abroad. As shown with the theoretical framework in equation 8, such a phenomenon in the long run is only possible if Moroccans living abroad have some degree of attachment to their home country. As Figure 2 illustrates, the price index for housing, which grows at approximately the same rate as the whole price index, does not show any specific pattern that could significantly tie real estate construction by Moroccans living abroad to some form of investment.

60. The wealth effect of the exchange rate depreciation should not be excluded from the long-run determinants of remittances in Morocco. The coefficient on ERdh/FF_EUR is not the long-run value of the elasticity of remittances with respect to the exchange rate as argued in Appendix III with equation 9. However, the estimated short-run model suggests that this elasticity could be positive (Appendix IV and Table 6).

61. There is no evidence that portfolio diversification motives could be behind the remittances in the long-run. This claim is supported by the negative semi-elasticity of remittances with respect to interest rates differentials IR_Mor – IR_Fce and the negative coefficient on Dep. The negative signs of these two coefficients imply that holding everything else constant, including the long-run level of remittances and financial assets abroad, an increase in the interest differential in favor of Morocco will not increase the longrun amount of deposits held in Morocco by Moroccans living abroad (Figure 3). Therefore, this finding implies that those deposits may not be accumulated as part of a portfolio diversification strategy. Furthermore, the negative elasticity for Dep also suggests that increases in remittances are associated with a draw down of those deposits. This supports the argument that those deposits could merely be transitory accounts that are used to complement spending in the home country when necessary.

62. Even though the analysis could be made richer by adding other variables that have been left aside, one should note that the model satisfactorily fits the data, including during the period after 2000, when the surge in remittances is observed (Figures 6 and 7). However, the model cannot irrevocably attribute the surge in remittances to a specific factor or group of factors. The wealth effect of the devaluation of the dirham, which occurred at that time, could be a potential explanatory factor. However, one cannot reach such a conclusion with certainty without a much deeper analysis, which should also include countries such as Pakistan, where a similar surge in remittances was observed during the same period.

Figure 7.
Figure 7.

Remittances Growth Rates and Their Fitted Values

(Error-correction or Short-run model)

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A003

Sources: Moroccan authorities; and IMF staff estimates

D. Conclusion and Policy Implications

63. There is no evidence that could suggest that there are significant risks for a sharp slowdown or reversal of workers’ remittances to Morocco in the foreseeable future. The analysis suggests that altruism or solidarity, attachment to homeland and economic growth in the countries of residence could be the main long-run determinants of workers’ remittances in Morocco. Moreover, there is no strong evidence that motives for portfolio diversification are significant among the long-run explanatory factors. This finding potentially lowers the above mentioned risks. Thus, remittances are likely to continue to be an important source of foreign exchange inflows to Morocco.

64. The evidence on Moroccans’ attachment to their home country supports the view that Morocco should maintain its economic and political reform efforts, which could further help diversify the investment allocation of remittance inflows, limit the negative impact that remittances could have on labor force participation, and therefore help create a sustained and broad-based economic growth. The evidence suggests that Moroccans living abroad already show some attachment to their home country, as confirmed by the positive long-run correlation between remittances to Morocco and the value added of the construction sector. However, because this spending in Morocco is concentrated in the construction sector and because only a small portion of remittances goes to the creation of small and medium-size enterprises, Morocco does not fully take advantage of the skills of the new generations who, according to the authorities’ own analysis, are not only highly qualified but are also more likely to be entrepreneurs. Therefore, Morocco could further utilize the entrepreneurial skills of its citizens living abroad, which along with the attachment to the home country, could potentially increase remittances through investment and boost Morocco’s economic growth.

APPENDIX III The Microeconomics of Workers’ Remittances

This section briefly describes the theoretical framework that has guided the empirical investigation related to workers remittances in Morocco.

A. Summary of the Model

Throughout the model, subscripts t and j will denote the period. The additional notations presented below will be used:

MRA will stand for “Moroccan Residing Abroad.”

Ut will denote the utility function of the MRA.

β its time discount rate.

Hj will denote size of the nonfinancial asset (real estate) in Morocco (construction costs/unit price of construction goods).

C*j will denote the MRA’s real consumption abroad.

Cj will denote the MRA’s parents’ real consumption in Morocco.

αj will be degree of the “attachment” of the MRA to Morocco.

γj will be MRA’s degree of altruism toward parents left in Morocco.

P*j will denote consumption goods prices abroad.

M*j will denote the total MRA’s transfers to Morocco in foreign currency (this is what enters in the BOP).

B*j will be the MRA’s end-of-period net assets held abroad in foreign currency.

W*j will be the MRA’s earnings in foreign currency.

i*j is the level of interest rates abroad.

Aj is the MRA’ net financial assets in Morocco (balance of bank accounts held by MRAs in Morocco). The asset value is denominated in dirham.

ij is the level of interest rates in Morocco.

Pj is price index in Morocco.

ej is the exchange rate. It is the amount of dirham per unit of foreign currency.

T*j will denote the MRA’s transfers to parents left in Morocco.

wj will denote the nominal level of wages in Morocco.

ΔjLogX will denote is the first difference in logarithm of X from its previous-period value (i.e. ΔjXLog(Xj)-Log(Xj-1).

DjLogX will denote is the first difference in logarithm of X from its long-run or steady state value X¯(i. e.DjLogXLogXjLogX¯j).

Each period j, the MRA faces the following constraints:

P j * C j * + M j * + B j * B j 1 * = W j * + i j * B j 1 * ( 2 )
A j = A j 1 ( 1 + i j ) + e j M j * p j ( H j H j 1 ) e j T j * ( 3 )
H j > 0 ( 4 )

Equation (2) is the budget constraint faced by the MRA each period. It says the amount of spending in consumption abroad, transfers to the home country and asset accumulation must be equal to total income in the period, including interest income. Given the fact that M*jcan be positive or negative in equation (2), the model allows for portfolio diversification.

Equation (3) gives the law of motion of the interest-earning account. It increases with the interest rate and the amount of transfers. However, it declines as money is withdrawn to finance construction and maintenance of real estate or to support relatives or friends in the home country. Equation (4) just says that the nonfinancial asset must remain positive.

The MRA faces the following additional constraint:

C j = ( P j w j + e j T j * ) / P j ( 5 )

Equation (5) assumes that the MRA’s family in Morocco consumes all her revenue, including the transfers from the MRA. This assumption is used solely to simplify the model. One could assume that only a fraction of the revenue is consumed each period without altering the results. One could also make the level of family’s consumption an outcome of an optimization problem where the MRA’s family solves an intertemporal problem and could acquire her own assets to smooth consumption. However, such an approach would not only add complications to the model, but it will not be very realistic. The reason is that families receiving transfers from parents’ living abroad are less likely to build sizable stocks of financial assets because of their modest living conditions.

The MRA then solves the following problem:

Max U t = j = t β j t ( α j L n ( H j ) + L n ( C j * ) + γ j L n ( C j ) ) ( 6 )

Subject each period j to (2), (3), (4) and (5)

Note that such a representation of an MRA’s welfare takes into account future generations utility, but discount it at a rate β. Note also that Hj, the size of the nonfinancial asset (real estate) enters directly in the utility function. This formulation implicitly assumes that the services, and the flow of “happiness” provided by a nonfinancial asset in the nature of a real estate increases with the size of the asset. Finally, note that the terms aj and γj, which respectively capture attachment to the home country and the degree of altruism, can also vary over time. An increase in the degree of attachment to the home country will increase the desired size of the nonfinancial asset, and therefore increase transfers destined to accumulating such an asset. Similarly, an increase in the degree of altruism will also increase the amount of consumption Cj one would like her relatives to enjoy. The implications of the model will now be examined.

At the optimum, among other things, we have the following:

P j C j = γ j e j P j * C j * ( 7 )

Equation (7) links the level of consumption the MRA wants her family to have to her own level of consumption in the country of residence. Note the important role of the degree of altruism γj. The greater the degree of altruism, the greater the level of consumption enjoyed by the MRA’s family. Using equation (5), one can easily see how the model will imply that a greater degree of altruism will lead to larger transfers to the home country. The steady state will give another important implication of the model.

The steady state or long-run in this framework is defined as an equilibrium where the exchange rate, the degree of altruism and attachment to homeland, interest rates, the inflation rates in the home country and abroad, the rates of growth of transfers, financial and nonfinancial assets are all constant. One can show that such a steady state exists and that in particular, it implies that

P j H j e j = P j ( H j H j 1 ) g e j P j g C s t r j = α j a h P j * C j * ( 8 )

where g is the long-run growth rate of transfers as well as financial and nonfinancial assets, and ah a constant term that depends on the long-run interest and inflation rates. Note that Cstr is the amount of construction of real estate or the acquisition of other nonfinancial assets by the MRA.

Equation (8) says that in the long-run, the acquisition of nonfinancial assets by the MRA in her home country will strongly depend on aj, her degree of attachment to her home country as well as on her level of consumption in her country of residence. Note the important role played by the degree of attachment to the home country in equation (8). The higher the degree of attachment to the home country, the larger the desired level of nonfinancial asset. Using equation (3), one can intuitively see why the model would imply larger transfers to the home country if the MRA’s degree of attachment to the home country increases. One can now turn to the empirical implications of the model.

The implied short- and long-run regression equations

The model presented in the previous section implies that the long-run relation between remittances and their determinants is as given in equation (9) and the short-run relation as in equation (10). The existence of a long-run relation as presented in equation (9) is tested44 and estimated using Johansen (1991) approach (Tables 4 and 5). The short-run relation in equation (10) is estimated by OLS in Table 6. Note that using the Granger representation theorem,45 a negative coefficient on the term ECMj-1 in equation (10) will confirm the existence of a long-run relation between remittances and their determinants as implied by the model. 46

Log M j * = 1 σ m w * LogW j * +(σ A A ( 1) L o g A j + ( σ B + σ B ( 1 ) ) L o g B j * + σ h LogCstr j + σ w LogW j + ( σ e 1 1 λ 1 ( σ i + σ i * ) λ 2 ) Loge j + 1 1 λ 1 ( σ 1 + λ 1 σ i * ) ( i j i j * ) ) ) + E C M j = 1 σ m ( ( σ w * + φ ( σ B + σ B ( 1 ) ) ) Log W j * + ( σ A + σ A ( 1 ) ) L o g A j + σ h LogCstr j + σ w Log w j + ( σ e 1 1 λ 1 ( σ i + σ i * ) λ 2 ) Loge j + 1 1 λ 1 ( σ i + λ 1 σ i * ) ( i j i j * ) ) ) + E C M j ( 9 )
D j LogM * = q w * D j L o g W j * + q A D j L o g A j + q A (-1) D j L o g A j 1 + q B D j L o g B j * + q B ( 1 ) D j L o g B j 1 * + q h D j LogCstr j + q w D j LogW j + q p D j LogP j + q e D j Loge j + q i D j i j + q i * D j i j * + ( η 1 ) σ m E C M j 1 + q 0 + ν j = ( q w * + φ ( q B + q B ( 1) ) ) D j LogW j * + q A D j L o g A j + q A (-1) D j L o g A j 1 + q h D j LogCstr j + q w D j Log w j + q p LogP j + q e D j Loge j + q i D j i j + q i * D j i j * + ( η 1 ) σ m E C M j 1 + q 0 ' + ν j ' ( 10 )

assuming that

L o g B j = 1 φ L o g W j * + μ j ( 11 )

and that

i j * = λ 1 i j λ 2 L o g e j + κ j , 0 < λ 1 < 1 , λ 2 > 0 ( 12 )

Equation (11) states that financial assets held by MRAs abroad increase with their wages, up to a term μj that is stationary. This assumption is made because there is no data on MRAs financial asset holdings in their countries of residence.

Equation (12) is suggested by the evidence on deposit rates in France, which are used as a proxy for i*j . This equationis a deviation from the exchange rate parity. This could be the product of some form of capital controls. 47 Holding the exchange rate constant, an increase of interest rates abroad of one percent must be matched with a more than one percent increase in interest rates in the home country.

The elasticities in equation (9) are defined as follows:

σ m = 1 + ( P e C s t r ¯ e M ¯ + e T ¯ e M ¯ ( P C ¯ e T ¯ W ¯ e T ¯ ) ) e M ¯ P * C * > 0 σ w * = ( P e C s t r ¯ e M ¯ + e T ¯ e M ¯ ( P C ¯ e T ¯ W ¯ e T ¯ ) ) W * ¯ P * C * > 0 σ w = e T ¯ e M ¯ P w ¯ e T ¯ < 0 σ h = e T ¯ e M ¯ P w ¯ e T ¯ > 0 σ e = P e C s t r ¯ e M ¯ 1 ( 13 )

and

σ A = A ¯ e M ¯ > 0 σ A ( 1 ) = A ¯ e M ¯ 1 1 + g < 0 σ B = B * ¯ P * C * ( P e C s t r ¯ e M ¯ + e T ¯ e M ¯ ( P C ¯ e T ¯ W ¯ e T ¯ ) ) < 0 σ B ( 1 ) = 1 1 + g B * ¯ P * C * ¯ ( P e C s t r ¯ e M ¯ + e T ¯ e M ¯ ( P C ¯ e T ¯ W ¯ e T ¯ ) ) > 0 σ i = σ A ( 1 ) = A ¯ e M ¯ 1 1 + g < 0 σ i * = σ B ( 1 ) = 1 1 + g B * ¯ P * C * ¯ ( P e C s t r ¯ e M ¯ + e T ¯ e M ¯ ( P C ¯ e T ¯ W ¯ e T ¯ ) ) > 0 ( 14 )

vj vj are stationary random terms and qo and o and η are constant terms. The elasticities in equation (10) are as follows

q w * = W * ¯ e T ¯ e T ¯ e M ¯ = W * ¯ e M ¯ > 0 q w = P w ¯ e M ¯ < 0 q h = P C s t r ¯ e M ¯ > 0 ( 15 )
q e = P C s t r ¯ e M ¯ 1 q p = P C s t r ¯ e M ¯ P . w ¯ e M ¯ ( 16 )

and,

q A > 0 , q A 1 < 0 , q B < 0 , q B 1 > 0 , q i < 0 , q i * > 0 ( 17 )

Note that equation (9) implies clear altruistic motives for the remittances, i.e. that remittances will increase with bad economic performances in the home country (σw <0), and with good ones in the country of residence*w >0). It is important to note that in equation (9), the elasticity of remittances with respect to wages in the country of residence is positive only because the family in the home country is receiving positive transfers at the optimum (i.e. P.C¯eT¯W¯eT¯>0, which implies that σm > 0). Equation (9) also implies that “attachment to homeland”, as captured by the construction of real estate in Morocco by the MRAs should imply a positive elasticity between remittances are the construction GDP (σh > 0.)

The model also implies that remittances increase with the depreciation of the home country currency in the short-run (qe > 0) if and only if the long-run elasticity of remittances to construction spending is greater than unity, i.e. if the wealth effect of the exchange rate depreciation dominates the substitution effect. Formally in equation (16), we have qe >0 if and only if (e. P. Cstr)/(e. M* >1. The intuition is that if the home country’s currency depreciates by one percent, holding everything else constant, including the foreign-currency equivalent of construction spending, then construction spending in the local currency will increase by one percent, and therefore remittances in local currency must increase by more than one percent because of the elasticity. The only way this can happen is if there is additional inflow of foreign currency. The effect of the exchange rate depreciation will only increase remittances by one percent.

One can also see from equation (16) that qp >0 if the long-run elasticity of remittances to construction spending is greater than the elasticity of transfers to nominal wages in the home country. The intuition is that holding everything else constant, including real wages, an increase in prices in the home country raises the unit cost of construction goods as well as nominal wages. The first effect will be to increase remittances, and the second to reduce them. The outcome will depend on the difference in the two elasticities.

It is now shown how the two relations in equations (9) and (10) are derived.

Assuming that the variables remain in the “neighborhood” of their steady state values, one can log-linearize the model’s equilibrium outcome around the steady state. Rearranging the standard log-linearized equationwill imply the following equation

Log M j * = q w * LogW j * + q A L o g A j + q A (-1) L o g A j-1 + q B L o g B j * + q B (-1) L o g B j -1 * + q h LogCstr j + q w Log w j + q p LogP j + q e Loge j + q i i j + q i * i j * + L R 0 + ε j ( 18 )

where we have

LR 0 = Log M j * ¯ ( q w * Log W j * ¯ + q A L o g A ¯ j + q A ( 1 ) L og A j 1 ¯ + q B L og B j * ¯ + q B (-1) L og B j 1 * ¯ + q h Log Cstr ¯ j + q w Log w ¯ j + q p Log P ¯ j + q e Log e ¯ j + q i i j ¯ + q i * i j * ¯ ) ( 19 )

εj in equation (18) captures the magnitude of the short-run “disequilibrium,” that is the deviation of the level of remittances from their level as predicted by the long-run relation. Since it is assumed that variables deviates from their long-run relation only by stationary random term, one can use the log-linearized version of equation (8) to rewrite εj so as to eliminate domestic prices using equation (2). 48 The resulting equationis then

ε j = ( Δ LogM * ( q w * Δ j LogW * + q A Δ j L o g A + q A (-1) Δ j 1 L o g A + q B Δ j L o g B * + q B (-1) Δ L o g B * + q h Δ j LogCstr + q w Δ j Log w + q p Δ j LogP + q e Δ j Loge + q i Δ j i + q i * Δ j i * ) ) = σ m LogM j * ( σ w * LogW j * + ( σ A + σ A ( 1 ) ) L o g A j + ( σ B + σ B ( 1 ) ) L o g B j * + σ h LogCstr j + σ w LogW j + ( σ e 1 1 λ 1 ( σ i + σ i * ) λ 2 ) Loge j + 1 1 λ 1 ( σ i + λ 1 σ i * ) ( i j i j * ) ) ) L R 0 ' = σ m E C M j L R 0 ' + σ A ( 1 ) g J A + σ B ( 1 ) g j B + δ j ( 20 )

where we have

E C M j = 1 σ m ( σ m LogM j * ( σ w * LogW j * + ( σ A + σ A ( 1 ) ) L o g A j + ( σ B + σ B ( 1 ) ) L o g B j * + σ h LogCstr j + σ w Log W j + ( σ e 1 1 λ 1 ( σ i + σ i * ) λ 2 ) Loge j + 1 1 λ 1 ( σ 1 + λ 1 σ i * ) ( i j i j * ) ) ) = 1 σ m ( σ m L o g M j * ( ( σ w * + φ ( σ B + σ B ( 1 ) ) ) L o g W j * + ( σ A + σ A ( 1 ) ) L o g A j + σ h LogCstr j + Log W j + ( σ e 1 1 λ 1 ( σ i + σ i * ) λ 2 ) Loge j + 1 1 λ 1 ( σ i + λ 1 σ i * ) ( i j i j * ) ) ( 21 )

and

L R 0 ' = L R 0 = σ m Log M J * ¯ ( σ w * L o g W j * ¯ + σ A L o g A j ¯ + σ A ( 1 ) L o g A j 1 ¯ + σ B L o g B j * ¯ + σ B ( 1 ) L o g B j 1 * ¯ + σ h Log Cstr j ¯ + σ w Log w j ¯ + σ e Log e j ¯ + σ i i j ¯ + σ i i j ¯ + σ i * i j * ¯ ) ) ( 22 )

after assuming that equations (11) and (12) hold. δj is a stationary term. gjA and gjB are respectively the growth rate of assets held by MRAs in Morocco and abroad.

Note that equation (21) is equivalent to equation (9), which is the long-run relation between remittances and their determinants as predicted by the model.

Assuming that in equation (20), the growth rate of financial assets is stationary implies that the term ECMj is stationary and will represent the co-integration or long-run relations between the non-stationary variables included in the model. The empirical investigation will confirm the stationarity of the growth rate of deposits in Morocco. However, since there is no data on MRA’s financial assets in their country of residence, there is no way to verify the validity the assumption on the stationarity of the growth rate of those assets.

One way to present the model in an error-correction form as done in equation (10) is to assume that workers’ remittances are such that they tend to gradually move back toward their long-run value, so that one can assume that

ε j = η ε j 1 + ζ j

where ζj is stationary.

Using equations (23) and (18), one will have the (error-correction) form for the model as presented in equation (10).

The two relations in equations (9) and (10) will now be tested. Real GDP in Morocco will be used as a proxy for real wages.

APPENDIX IV A Summary of the Econometric Details

The dataset considered on remittances shows a sign of seasonality, especially during the third quarter (Figure 1). The authorities are pursuing their efforts of isolating the part of transfers that could reflect tourism motives and include it the services post of the BOP as a credit item. Nonetheless, seasonality should not necessarily be interpreted as inflows related to tourism from Moroccans living abroad. Seasonality can also come from altruism if one allows for the possibility that transfers could be made in order to help the family spend an enjoyable vacation time. This would probably be the case if the worker herself is spending vacation time with her family. Notwithstanding those remarks, the estimation procedure has included seasonality dummies.

All the potential explanatory factors discussed in section II, including interest rates cannot be ruled out a priori in the long-run relation determining workers’ remittances. As Table 2 shows, the logarithm of remittances is integrated of order one, or difference-stationary. Therefore, for an explanatory factor to be considered as a potential determinant in the long-run relation, it must have the same time-series properties as the level of remittances, that is, be integrated of order one. The Augmented Dickey-Fuller (ADF) tests for such properties could not reject the hypothesis of an order of integration of one for all the potential determinants considered as the table clearly shows. Note however that both GDP shows a trend.

The long-run relation presented in equation (9) is first estimated using the Johansen (1991) method. An (unrestricted) vector autoregression (VAR) will be used because the variables considered are non stationary. A constant enters the VAR in an “unrestricted” manner to allow for a trend in the variables. Presented in Table 3 are various misspecification tests to assess whether the model could suffer from omitted variables. The tests do not seem to reveal any serious problem, except for the correlations of residuals on the equation determining the exchange rate. Furthermore, because of the sample size constraint, a fourth-order VAR is used. It could not be checked whether such a model minimized the various information criteria. Therefore, additional procedures will be used to confirm the choice of the long-run relation.

The determination of the co-integration vector will be based on the interpretability of the vector in line with the model and the evidence, the co-integration graphs, as well as the result of formal testing, including testing using the error correction model given in equation (10). Whether the co-integration vector’s stationarity can be confirmed with ADF tests will also be checked.

The Johansen maximal and trace eigenvalue statistics confirm the existence of a long-run relation between remittances and their potential long-run determinants presented in equation (9). Table 4 presents the (λtrace and λmax), corrected for the degrees of freedom, and their probability values. Both tests suggest that there is one co-integration vectors that can be derived from the unrestricted VAR. To identify the vectors from the seven presented, an approach similar to Johansen and Juselius (1992) will be used and a direct interpretability of the co-integration vectors49 using the theory’s predictions and the evidence is examined. Only vector 4 seems to match both the theory and the evidence. 50 This will be confirmed by additional tests.

In light of the theoretical framework and the evidence, only vector 4 in Table 4 can be interpreted as the long-run relation between remittances and their determinants. The co-integration graph (Figure 6), the ADF tests (Table 2) and the error correction form of the model (Table 6) could not reject the vector as describing that long-run relation. Note that in the model in an error correction form given in equation (10), the misspecification tests in Table 6 do not reveal any problem, neither for residual autocorrelation (AR), skewness and excess kurtosis (normality), autoregressive conditional heteroskedasticity (ARCH), nor heteroskedasticity (RESET test). The coefficient on the term ECM is negative and significant, even using the conservative Dickey-Fuller five percent critical value of -1.95. These findings support the choice of the vector as describing the long-run relation determining the level of remittances. The model also satisfactorily describes the short-run as illustrated in Figures 7 and 8, where the 1-step Chow tests could not reject the hypothesis of the model’s stability.

The co-integration vector has been normalized on the remittances and is presented in equation (1). Note that except for the elasticity on deposits in Morocco, equation (1) confirms all predictions of the model. The estimated positive elasticity on wages can still be interpreted as is because even though wages are used as a proxy for assets held abroad, the elasticity on those assets is predicted to be negative in the model σB+σB(1)<0 Therefore, a positive coefficient on wages will imply that σw*>0, as predicted in the model. Note that the estimated positive coefficient for the exchange rate cannot be interpreted from the long-run equation. The term σe11λ1(σi+σj*)λ2 in equation (9) can still be positive even if the term σe is negative. The estimated short-run model in Table 6 suggests that the elasticity of remittances with respect to construction spending is greater than unity, thus implying that σe = qh-1>0. This implies that the wealth effect of the exchange rate depreciation cannot be excluded as an explanatory factor for remittances. The negative coefficient on the interest differential 11λ1(σi+λ1σi*)<0 is in line with the evidence (Figure 4) and implies that σi< 0 which is consistent with the model, given it’s prediction that σi*>0. However, one cannot rigorously check if we have σi*>0. However, the evidence on the wage elasticity suggest that one can reasonably expect remittances to increase with interest income from financial assets held by MRAs in their country of residence. The model’s predictions on both remittances and construction GDP as well as real GDP in Morocco are supported by the evidence.

There is no evidence that portfolio diversification motives are among the long-run determinants of transfers in Morocco. Another way to read the model as presented in equation (9) is to say that if portfolio diversification motives were strong as long-run determinants of remittances, i.e. if 11λ1(σi+λ1σi*)<0, then holding everything else constant, including remittances, an increase in the interest rate differential will lead to financial assets substitution in favor of the country whose interest rates have increased the most. This would then imply that the coefficients on deposits and interest differentials in equation (9) are of different signs in the long-run. This has not been confirmed by the evidence.

This concludes the econometric analysis of workers’ remittances in Morocco. The economic interpretation of these results is given above.

APPENDIX V

Table 2

Morroco: ADF(4) Statistics for Unit Root tests

article image
Notes: The estimation period is 1993:Q1-2003:Q4. The dataset is taken from the Moroccan authorities and the International Financial Staistics. The variables are defined in section III.B. Foor each variable, values in the second column denotes the t-values of the augmented Dickey-Fuller (ADF) statistics. The third column denotes the lag order that minimizes the Akaike information criteria (AIC) and the fourth, the lag order of an alternative model. The ADF statistics is testing a null hypothesis of a unit root in that variable expressed in (Log) levels and first (Log) difference against an alternative of a stationary root. Each regression contains a constant, a trend and seasonal dummies. * and ** denote rejection at the 5 and 1 percent significance levels. The ADF tests were augmented with 4 lags, except for the ECM equation where it was augmented with 6 lags. The null hypothesis was rejected for Dep_dh in levels at 5 percent level of significance when there was no lag added.
Table 3

Morocco: Residual Misspecification Test Statistics: First Order (unrestricted) VAR

article image
Notes: The estimation period is 1993:Q1-2003:Q4. The dataset is taken from the Moroccan authorities and the International Financial Staistics. The variables are defined in section III.B. The vector auto regression is estimated with 4 lags and contains an unrestricted constant and seasonal dummies. The null hypothesis are that of no serial correlation, and of normality. * and ** denote rejection of the null hypothesis at the 5 and 1 percent significance levels.
Table 4.

Morocco: Test Statistics for Cointegrating Rank

article image
Notes: r denotes the rank of the long-run matrix. The sample period is 1994:Q1-2003:Q4. The unrestricted VAR is estimated with four lags. The small sample size did not allow for a longer lag tength. Given this constraint, the system with four lags minimized the information criteria (Akaike, Schwarz, Hannan-Quinn). Probability values are square brackets. * and ** denote rejection of the null hypothesis at the 5 and 1 percent significance levels.
Table 5.

Morocco: Unrestricted Estimates of the Cointegrating Vectors and Adjustment Coefficients

article image
Notes: The estimation period is 1993:Q1-2003:Q4.
Table 6.

Morroco: Error Correction or Short Run Model

article image
Notes: The estimation period is 1995:Q1-2003:Q3. The dataset is taken from the Moroccan authorities and the International Financial Staistics. The variables are defined in section III.B. The error correction model includes 4 lags for deposits, prices and the exchange rate to reduce the serial correlation in the error terms. Note that the ‘t’ statistic for ECM does not follow the standard ‘t’ distribution, but rather another distribution tecm. See further discusion in the appendix. For the mispecification tests, probability values are in square brackects.
Figure 8.
Figure 8.

Morocco. Error Correction Model Residuals and One-up Chow Test

Citation: IMF Staff Country Reports 2004, 164; 10.5089/9781451824735.002.A003

Sources: Moroccan authorities; and IMF staff estimates.

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27

This chapter was prepared by Jacques Bouhga-Hagbe.

28

A similar phenomenon was observed in Pakistan at the same time, where remittances moved from about 2 percent of GDP before 2001 to more than 6 percent of GDP after 2002.

29

In order to absorb liquidity in the Moroccan banking system, BAM has recently used reserve requirements and interest rates on its deposit facilities. In addition, an auction mechanism to further absorb bank liquidity has just been introduced.

30

See for example Taylor (1999) and Elbadawi and Rocha (1992), Russell (1986) and more recently Chami, Fullenkamp, and Jahjah (2003) for a review of the literature on remittances.

31

See for example Johnson and Whitelaw (1974), Lucas and Stark (1985).

32

Lucas and Stark (1985) find evidence for self-interested behavior in Botswana and suggest that one reason for remitting could be that migrants may have investments that need attention while they are away.

35

See for example Straubhar (1986) and Wahba (1991), and more recently Gordon and Gupta (2004).

39

According to the authorities, part of such solidarity motives could be explained by workers’ strong family ties to Morocco, where they have left their parents, as well as children in some cases.

40

See Chami et al. (2003) for a recent discussion and evidence for altruism as a motive for remittances.

41

For example, even if a devaluation or a depreciation of the currency can temporarily attract flows from workers willing to buy goods in their home country because they have become less expensive, this factor can also undermine their confidence in the economy in the long run.

42

See for example Yule (1926), Granger and Newbold (1974), Phillips (1986) for further discussion.

43

We have conducted an alternative test to confirm whether the vector in equation 1 is indeed a co-integration vector. The framework for this test is provided by Banerjee, Hendry and Smith. (1986) and Kremers, Ericsson and Dolado (1992). The test essentially checks whether the coefficient on the term.

ECMj-1=(Remit-(1.8*(Wages_Fee)-4.2*GDP+10*Cstr +19.3*(ERdh/FF_EUR)-0.1*(IR_Mor-IR_Fce)-4.5*Dep))j-1 in equation 10 is negative and significant. Estimation results and ‘t’ statistics are presented in Table 6. Note that the ‘t’ statistics do not have the standard ‘t’ distribution

44

The main idea behind the test is to check whether the term ECMj, which is a linear combination of non stationary variables, is stationary. An additional (ADF) test for the stationarity of ECMj is presented in Table 2. A graph of the estimated ECM is provided in Figure 6.

46

As one can easily show from the model, other variables will not depend on the term ECM, and therefore could be thought of as weakly exogenous.

47

In Morocco, there are no restrictions on the transfers of proceeds from the liquidation of assets if the assets are purchased with an inflow of foreign exchange. Otherwise, the proceeds must be deposited in a dirham convertible account and may be transferred over a period of five years.

48

The only purpose of this operation is to reduce the number variables that will be used in the VAR and to increase the degrees of freedom in order to have more reliable estimates of the long-run relation. This is not necessary when the sample size is large enough. Prices are chosen because they are the most likely to meet the assumption of small stationary deviations from the long-run values.

49

Generic identification techniques could also be used when identifying restrictions are available and intuitive. See for example Dickey and Rossana (1994), Johansen and Juselius (1994), Hendry and Mizon (1993), Nachega (2001a, 2001b).

50

Vector 1, 2 and 3 in Table 4 would suggest that the long-run elasticity of remittances with construction GDP, which is a proxy for MRAs spending on construction is negative. This would contradict both the theory and the evidence (Figure 4). Vector 5, which is normalized on the interest rate differential has an adjustment coefficient that is positive and therefore does not lead to an equilibrium correcting path for the interest rate differential. The same argument on construction GDP can be used for vector 6. Vector 7 would contradict the theoretical predictions on GDP in Morocco, and the evidence showing a positive correlation between wages abroad and transfers (Figure 4).

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Morocco: Selected Issues
Author:
International Monetary Fund
  • Figure 1.

    Workers’ Remittances

  • Figure 2.

    Housing Prices and Effective Exchange Rates

  • Figure 3.

    Potential Long-Run Determinants of Workers’ Remittances

    (In logarithm, unless otherwise indicated)

  • Figure 4.

    Deviation of Remittances from the Long-Run Value as Defined in Equation 1

  • Figure 5.

    Evolution of Transfers and Some of Their Potential Long-Run Determinants

    (In logarithm of variables in French Francs, unless otherwise indicated)

  • Figure 6.

    Transfers and Total Deposits and Their Fitted Values (VAR)

  • Figure 7.

    Remittances Growth Rates and Their Fitted Values

    (Error-correction or Short-run model)

  • Figure 8.

    Morocco. Error Correction Model Residuals and One-up Chow Test