Capital deepening and efficiency in Morocco

Investment is at the heart of economic growth. It increases the available stock of capital for productive activities and allows the introduction, in the productive process, of improved technology embedded in new capital items. Monitoring accumulation and use of this capital is a big issue. Our paper aims to bring a diagnostic of the Moroccan case by responding to these two questions: is capital stock sufficient? Is it efficiently used? Our results show that Morocco recorded an overinvestment in the 1970s, an underinvestment in the period 1982-2004 and an overinvestment since mid-2000s. The estimation of the rate of return to capital in the Moroccan economy indicates that RRK was under 10% until the beginning of the 1990s. Since then, it recorded a steady increase that culminated at 18% around 2004. After this date, it began to decrease. We attribute the low level of capital-labor ratio in Morocco to the high price of investment goods compared to consumption goods especially before 2000, to the insufficiency of human capital accumulation and absorption, and to the low level of TFP. The major conclusion of this paper is that the debate about the efficiency of capital use must go hand in hand with an exploration of why capital accumulation in Morocco is insufficient.