Microeconomics of Growth: Case of Morocco Najib Harabi, Professor of Economics, Solothurn University of Applied Sciences/Northwestern Switzerland

Contents Introduction Theoretical Background Empirical Framework Conclusions and Policies Implications

Introduction Overall growth performance Macroeconomic Sources Microeconomic sources Focus of the Paper

Theoretical Framework Theory of optimal Firm Size: Technical economies of scale Pecuniary economies of scale External economies of scale and Dynamic economies of scale

Empirical Investigation of Moroccan Firms Data Econometric analysis - Econometric Specification - Econometric Issues Results

Data World Bank Survey: 1998 Sample: 370 Firms Firms covering all firm sizes All major economic sectors: manufacturing, construction, services and commerce

Econometric Specification S (t) = S* + S (t-1) + (t). S* (t) = c + X (t) + (t). S (t) = c + X (t) + S (t-1) + (t), where  (t)   (t) + (t).

Determinants of firm Growth Size; age; legal form; location; innovative activity; diversification; the internal organization of the firm; market size; market structure; industry specific environment; state regulations and policies

Resutls 1) Firm specific variables 2) Firm Behavior 3) Market structure 4) Market demand 5) State regulations and policies 6) Inter-industry differences

Results 1) Firm specific variables:   Firm size seems to have a negative impact on firm growth. Small firms grow faster than larger ones.   Firm age has also a negative impact on firm growth. Younger firms grow faster. 

Results Firm location. In comparison with firms located in large urban centers, firms in medium urban centers and other smaller centers expect less growth. In this respect geography matters.

Results In addition to geographic location the legal form also affects the growth process of firms. Being a limited liability company, for instance, is positively correlated with growth prospects.

Results 2) Firm Behavior  Innovation behavior. The ability of the firm to innovate proves to be positively correlated with growth of sales. Product diversification. A further positive source of firm’s growth is its ability to diversify its existing products and services. On the other hand firms that try diversify their product mix are less successful with respect to growth.

Results Access to major inputs. The lack of access to qualified workers, to qualified managers and to good infrastructure (power, water, communication etc.) seems to be detrimental for the growth process of Moroccan firms. Less severe is the ability of firms to get access to financial resources and to industrial land.

Results 3) Market structure  Price competition. The ability of firms to both adapt their price policy to competitive pressures and to increase or decrease their market share accordingly proves to be positively associated with sales growth.

Results 4) Market demand. seems to exert an important impact on firm growth. (The variable MDEMAND shows a positive and statistically significant coefficient.)

Results 5) State regulations and policies State regulations of foreign trade together with domestic price volatility seem to have affected firm growth negatively.

Results 6) Inter-industry differences Theoretical and empirical studies suggest substantial inter-industry differences regarding firm growth. In the Moroccan context firms operating in the services and construction industries have experienced a less favorable growth environment than those in the manufacturing sector.

Policy Implications