1. Picking winners and losers An Empirical Analysis of Industrial Policy in Morocco 
Najib Harabi Professor of Economics University of Applied Sciences, Northwestern Switzerland

2. Contents Introduction Industrial Policy in Morocco
Evaluation of Industrial Policy in Morocco
Summary and Conclusions

3. Introduction
Two views of the role of the state in economic development
Two views of the relevance of industrial policy for development policy
Objectives of my paper

4. Activist Industrial Policy (1960-82)
Incentive programs for investments in industrial sectors
Subsidized Loans for investors
Public procurement policy
Policy of “Moroccanization”

5. More Liberal IP (1983-05) Macroeconomic stabilizations programs
Liberalization of trade
Liberalization of some domestic markets
Privatization of state-owned companies
Policies of targeting certain sectors (tourism, textile and clothing etc.)
Policies of targeting groups of firms (SME, Upgrading (Mise à Niveau)
Policies of targeting “national champions”

6. Evaluation of IP Two possible approaches for evaluation:
- Normative approach
- Positive approach
Research question: what is the impact of IP on the performance of the private sector in Morocco?

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

8. Empirical Approach Data Econometric analysis
- Econometric Specification
- Econometric Issues
Results

9. Data World Bank Survey: 2004 Sample: 850 Firms
Firms covering all firm sizes
All major economic manufacturing sectors

10. 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).

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

12. Results Firm size seems to have a positive impact
on firm growth. Larger firms grow faster than
smaller ones.
Firm age has, however, a negative impact on
firm growth. Younger firms grow faster. 

13. 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.

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

15. Results
 Innovation behavior. The ability of the firm to innovate is not significantly correlated with growth of employment.
Product diversification. A further positive source of firm’s growth is its ability to diversify its existing products and, especially markets.

16. Results
Access or not access to some major inputs also has an impact on firm growth. Lack of access to external financial resources and to basic infrastructure, such as electricity seems to be detrimental to the growth process of Moroccan firms.
Less severe impediments are lack of access to qualified labor force, industrial land and telecommunications.

17. Results
Market structure and the competitive environment under which firms are operating affect their behavior regarding the quantity of products to be produced and pricing policy.
In our case, this market structure (measured by the number of competitors in a specific market) and by the qualitative perception of competitive pressure by firms interviewed , has a negative impact on firm’s employment growth.

18. Results
Market demand seems to exert an important impact on firm growth.
Firms operating in the industries, such as leather & footwear, rubber & plastics, food processing, chemical industries and electrical machinery have experienced a less favorable growth environment than those in the garment (benchmark) and textile industries. Industry-specific factors, as measured here by industry dummies, do matter for the growth process of firms operating in those industries.

19. Results
State regulations and policies appear to have mixed effects. Effective government policies aiming at improving the quantity and quality of public goods, such a infrastructure, public transportation, security, education and health, seem to affect firm growth positively
All other government policies included in our econometric analysis seem, however, to have a negative impact on firm growth. Especially, tax policy towards firms and interest rate policy seem to be detrimental to employment growth of Moroccan firms .

20. Policy Implications
If confirmed by further analysis, these results have important policy implications for both business leaders and policymakers in Morocco.
For business leaders, is it important to emphasize that an explicit and sound growth strategy matters. Important points of such a strategy include the choice of the right location and legal form, and the choice of markets with sufficiently strong and expanding demand. A promising way for firms to grow in Morocco is to diversify both the products or services offered and their markets (export) .
For policymakers, the analysis suggests several policy areas where improvements may be needed. First, the regulatory and administrative framework has to be adjusted, to become more responsive to the needs of firms willing and able to grow. In this respect, competition policy has an important role in achieving fair play among competing firms.

21. Con.
Second, policies regarding education and professional training have to be targeted to the needs of firms.
Third, regional disparities with regard to infrastructure (roads and utilities, among others), manpower, life, and work quality have to be addressed, because these disparities present major obstacles for firms seeking to grow in certain parts of the country.
On the other hand, excessive government intervention is not conducive for firm growth.
A major lesson of this case study is that they are indirect clues of the inefficacy of industrial policies in Morocco, at least measured by their impact on firm growth.