Trade Liberalization and Employment in the Moroccan Manufacturing Sector

This paper uses firm level data to investigate the impact of trade liberalization on manufacturing sector employment in Morocco. This paper extends the existing research in various dimensions. First, it analyses the effect of trade openness on different skill levels of the manufacturing labor force. Second, the paper investigates the role of technology in explaining the magnitude of employment response following trade liberalization reforms. Our empirical results indicate that technology, as measured by capital intensity, and the share of new capital matters relatively more than trade in accounting for employment changes. In terms of policy implications, trade protection does not appear to be an effective tool in terms of saving jobs. Moreover, Moroccan commitments to further liberalize its trade means that manufacturing firms will have to face more competitive pressures on both domestic and foreign markets. Those firms that are endowed with upgraded technology are more likely to maintain or potentially raise their market shares, and hence create more jobs. Our results indicate that openness to foreign trade induces a significant skill composition effect. However, it also appears that skilled labor demand is highly sensitive to relative wages, which is consistent with the dominance of low value added products in the Moroccan manufacturing industries for which labor cost largely matters. The challenge for policy-makers is to design an appropriate support policies that stimulate domestic firms to invest and upgrade their technologies, ensure some degree of labor market flexibility, and create a business environment attractive for foreign investment.