The Size and Development of the Shadow Economy in Morocco

The objective of this paper is to estimate the size of the shadow economy in Morocco over the period 1988-2018. The CDA and MIMIC approaches are used while taking into consideration variables that reflect the features of the Moroccan economy such as the importance of currency in circulation, the size of the agricultural sector and the financial development process. Our results show that the evolution of the shadow economy exhibits three distinct periods: (i) over the first period 1988-1998, it is almost stagnant at around 40% of GDP; (ii) during the second period 1999-2008, it decreases to 32% -34% of GDP; (iii) during the last period 2009-2018, the declining trend is continuing but at a more moderate pace, to reach a level just below 30% of GDP. These results suggest that the strategies implemented by national authorities since the early 2000s to improve the institutional, economic and financial environment contributed to reducing the size of the shadow economy. However, the persistence of important shadow activities requires additional structural reforms particularly those related to education, judiciary system, tax policy and labor market.