# **1 Introduction**<sup>**1**</sup>

On what sectors will Morocco’s future export growth be based? What are the implications of Morocco’s current export structure for future structural transformation? This paper tries to shed some light on these issues by means of a detailed analysis of the evolution of Morocco’s structure of goods exports since 1990 and the implications of these developments for the future sector priorities. In terms of method, we rely on product space (PS) analysis, pioneered by Hausmann and Klinger (2006).

The paper is organized as follows: Section 2 provides a brief introduction to the basic features of the PS framework. Section 3 elaborates on the PS methodology and the PS concepts used in this paper, including a discussion of how its design and data limitations point to the need to complement it with analysis using other approaches. Section 4 presents the results of our PS analysis for Morocco. A more detailed presentation of PS concepts is found in Annex 1 while Annex 2 presents complimentary PS statistics for Morocco.

On a cautionary note, the findings presented in this paper are preliminary since they have not yet benefitted from discussions with local experts and policy makers – they are exclusively derived from empirical analysis of international trade data.

# **2 Basic Features of the Product Space Framework**

The process of structural change, experienced by developing countries as they move up in the development spectrum, may be seen as characterized by two phenomena that come hand in hand. The first is economic diversification (Imbs and Wacziarg 2003). Empirical evidence suggests that non‐agricultural activities in poor, stagnant, and underdeveloped economies are concentrated in a small number of sectors that tend to be very low‐value added and geographically concentrated. Over time, as economic growth accelerates, a wider range of capacities are created, permitting the production of a wider range of goods and services. As a result, non‐agricultural production starts to become more diversified, both in terms of sector structure and geographical location. Given this fairly regular pattern, economic diversification is recognized as an intrinsic part of sustained economic growth, leading to the pursuit of policies that promote diversification in growth strategies, especially for low‐income countries (Commission on Growth and Development. 2008).

A second phenomenon that appears during the process of structural change is an increase in the complexity of the economic system, in other words, an increase in the human capacity to produce goods and services that are technologically more sophisticated and that satisfy a larger variety of needs. As part of this second phenomenon, the economy starts to employ new production inputs coming from different sources: discovered or created locally, or brought in via foreign trade; and firms advance their capacity to integrate these inputs more efficiently or at a larger scale. The production inputs that matter do not only include standard production factors (such as labor, land, physical and human capital) and public goods (including physical infrastructure and institutional frameworks), but also

> 1 The authors would like to thank Jean‐Pierre Chauffour and Paolo Verme (both of the World Bank), and Ayache Khellaf and Mariam Eljoubari (both of Morocco’s Haut Commissariat au Plan) for helpful comments on earlier versions of this paper. The authors are indebted to the Knowledge for Change Program (KCP) Trust Fund for funding this research.

2