Track: Case Studies
This study estimates the size of the non-observed economy (NOE) in Morocco and analyzes its evolution over the period 1977 - 2019. We estimate a currency demand function following Tanzi’s (1980; 1983) Currency Demand Method, and put emphasis not only on the classical variables of the equation but also on other variables that are specific to the Moroccan economy’s context. Therefore, we introduce a dummy variable that captures the impact of banking regulations, net remittances, consumer price index, the part of government’s final public consumption in the Gross Domestic Product (GDP) and the part of public investment in GDP. Our econometric analysis shows that remittances have a negative effect on currency demand. The weight of taxation, reforms, rising living costs, the part of wages in the national revenue, the consumer price index as well as the parts of public consumption and investment in GDP have a positive impact on the quantity of currency circulating in the economy. The results also show that the size of the NOE averaged 42% over the entire period under study and reached 67% by 2019.
From a methodological point of view, we took into consideration the difference in money velocities between the formal and informal sectors using the Ahumada et al.’s (2006) correction. We also adopted the fully modified least squares (FM-OLS) in order to tackle the series’ cointegration and to circumvent the serial autocorrelation issues.