A macroeconometric model for Algeria. A medium term macroeconometric model for Algeria 1963-1984, a policy simulation approach to Algerian development problems.

Abstract

This thesis is concerned with the development and use of a macroeconometric model for the Algerian economy between 1963 and 1984. The model was built because of a systematic lack of applied econometric studies pertaining to Algeria at both the macroeconomic and microeconomic level. It is hoped that the model will fill a gap in this area and will contribute to the much neglected field of applied econometric research with regard to Algeria. This lack of applied econometric studies for Algeria meant that the modelling exercise described here has had to rely on an extensive specification search based on evidence relating to Algeria's economic structure and policy, economic theory, and the experience of Less Developed Countries in the area of macroeconomic model-building. The lack of data was a major constraint in this area and part of this study consisted of collecting and compiling a large database. After the country's independence in 1962, Algerian macroeconomic policy aimed to create a strong industrial system and to satisfy the population's basic needs. It relied on heavy industrialisation to modernise the economy, oil revenues to finance development, and central planning as the major tool of macroeconomic regulation. The accumulation rate was high and the growth record was generally good. However high unemployment and inflation, considerable disequilibrium, low productivity, a vulnerable balance of payments and unsustainable external debt are the major macroeconomic problems that policy-makers have had to face. The model's equations were first estimated using the OLS method and were subjected to stringent statistical tests. The degree of test significance and parameter correspondence to a priori views on the economy was good. when the model was constructed, it was estimated using a 2SLS principal component method. The OLD results were found to be reasonably feasible. The equations were collected into a system of 63 equations and solved using dynamic simulation technique. The model was solved successfully and its tracking of historical data was reasonably good. Further tests were carried out to study its dynamic features. Having constructed the model, it was then used extensively to perform simulation analysis. The experiments ranged from those concerning the goverment's current expenditure to its monetary policy. In all, nine simulation exercises were carried out. These were revealing on the workings of the Algerian economy. The model was further used in scenario analysis. First the model was used to develop an ex ante forecast employing a linear trend model for the exogenous variables. The forecast database was used to generate multipliers. The policy analysis was constructed to coincide with the implementation of the Second Five Year Plan (1985-1989). The feasibility of the plan was examined by varying the price of oil according to three hypotheses. The aim of this test was to develop a realistic framework for applied macroeconomic analysis.