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2009 AEC- Effects of FDI and Trade Opening on Morocco Economic Growth

10-Nov-2009

Recent theoretical developments argue that some relevant explanatory variables should be introduced into the standard model of economic growth. This paper is dealing with this issue, taking into account certain external sector variables as potential explanatory factors of per capita economic growth in the case of Morocco. In particular, the paper focuses on the study of the impact on economic growth of foreign direct investment (FDI) and trade openness. It is not limited however to the estimation of the isolated impact of the two variables but proposes to take their interactive effect into consideration. Indeed, one major shortcoming of the existing recent studies in this research area is that they have 3 devoted few efforts to better understand how FDI and trade liberalization may interact to explain changes in economic growth rates. The impact of FDI on economic growth would likely depend on the adopted trade regime in a given country. Countries with liberal trade regimes would perform relatively better in attracting FDI and using it as a catalyst for economic growth. A liberal trade regime would generate an investment climate that is conducive to learning and goes along with the human capital and new technology infused by FDI. Moreover, trade openness also provides access to a larger market and, therefore, is likely to attract FDI. In a context of trade liberalization, FDI would strongly contribute to modern technology transfer and innovation from developed to developing countries, and, therefore, would boost trade transactions and foster economic growth.

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