Effects of FDI and Trade Opening on Morocco’s Economic Growth

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Recent theoretical developments point to the need to enrich the standard economic growth model by introducing other factors into it to explain variations in aggregate output. This paper follows that logic by incorporating certain external sector variables as factors that could explain per capita economic growth in the case of Morocco. In particular, this paper focuses on assessing the impact of the trade liberalization and FDI flows on economic growth. It is not however limited to estimating the effects of these two variables in isolation; it proposes to take into consideration their interactive impact.Moreover, one of the limitations of recent studies on these subjects is that they have entailed less effort toward a better understanding of how FDI and trade liberalization could interact to explain the variation in economic growth rates.

The impact of FDI on economic growth would probably depend on the trade regime adopted. Countries with liberal trade regimes could achieve better performances in terms of attracting FDI and using them as economic growth catalysts. A liberal trade regime could create a learning- inducing investment environment, with the human capital and the new technologies brought by FDI. In addition,the trade opening- up could improve access to larger markets and thus make it possible to attract more FDI. In a context of trade liberalization, FDI could contribute significantly to transferring modern technology and innovation from the developed to developing countries and thereby boost commercial transactions and strengthen economic growth. By introducing FDI and trade liberalization as explanatory variables for a model of increased and enhanced growth, and using recent techniques for time series analysis over the 1970-2005 period, we have obtained empirical results that appear useful. Neither FDI nor the trade liberalization taken in isolation have shown statistical significance in the model estimate. However, the combined effect of FDIs and the trade liberalization has given a positive and very significant statistical result.

Our empirical results thus suggest that FDI can boost per capita economic growth in Morocco if accompanied by trade liberalization. In a context of trade restrictions, it appears that FDI flows cannot contribute to reviving the economic growth process for the long-term.