Industrial Policy, Structural Change and Global Value Chains Participation: Case study of Morocco, Tunisia and Egypt

Morocco, Tunisia and Egypt (such as many other developing countries) have always considered pro-active industrial policies as an important means to upgrading their manufacturing sector. In an era of premature deindustrialization, the manufacturing sector is expected to promote structural change and economic convergence allowing job creation. On this basis, this paper thus analyzes the pace of structural transformation for the three North African countries in the last decade using two approaches. First, this study analyzes labor reallocation between five sectors of the economy and assess to what extent this movement contributes to the overall productivity growth. The second approach applied in this study is related to the construction of new measures for exports performance, quality and variety dimensions. Results show that for the case of Morocco and Tunisia, performances are comparable with a reallocation effect that was positive and contributed to 18% and 21% respectively to overall productivity growth, driven mainly by services that were able to create more and more employment in parallel with an increase in their efficiency as measured by productivity gains. However, Morocco has witnessed a productivity growth around 3.7% per year in average while in Tunisia the performance is well below, rounding up to 1.7%. For Egypt, the period 1999-2008 experienced a negative contribution of the reallocation effect to overall productivity growth, meaning that the labor factor was moving from high productivity sectors to low productivity sectors. Horizontal policies related to exchange rate management and monetary policy could be the factors to blame for this growth-reducing structural change. In addition, the increased reliance on natural resources could have compromised the reallocation of labor between low to high productivity sectors.