Effects of FDI and Trade Openness on Economic Growth in Morocco

Recent theoretical developments argue that the standard model of economic growth needs to be enriched by introducing other factors that can explain variations in aggregate output. This paper moves in this direction by introducing some variables from the external sector as possible explanatory factors for economic growth per capita in the Moroccan case. In particular, this paper focuses on studying the effect of trade openness and foreign direct investment flows on economic growth. However, this paper does not limit itself to estimating the two variable isolated effects, but proposes their interactive impact. One of the limitations of the new study in this field is that they have made less effort in order to understand better how foreign direct investment and the liberalization of trade can explain the variation in the pace of economic growth. The economic growth affected by foreign direct investment is probably due to one of the trade regimes adopted. Countries with liberal trade regimes could do better to attract foreign direct investment and use economic development as a catalyst. A liberal trading regime will establish a learning-generating investments environment that is symbiotic with human capital and new FDI technology. Also, transparency in trade could improve access to larger markets and, therefore, likely help attract more direct investment. In the trade liberalization sense, FDI can significantly engage in contributing to the transfer from developed countries to developing countries, new technology and innovation and thus stimulate transactions in exchange and improve the growth of economic. By the introduction the openness for trading and FDI as variables explanatory into a model of increased and improved development and using recent time series analysis techniques during 1970‐2005, we obtained empirical results that seem interesting. As variables are taken in isolation, neither FDI nor trading openness is statistically significant in the estimated model. We can also see the cumulative impact of FDI and the liberalization of trade has been favorable and very important statistically. Our empirical results suggest that FDI per capita may stimulate Morocco's economic growth if it is accompanied by trade liberalization. Against the background restrictions on exchange, it appears that the inflow of foreign currency could not revive the process of long‐term economic growth