Fiscal Policy and Foreign Investment Flows in Morocco: Evidence from Time Series Analysis

Abstract

This study investigates the effect of fiscal policy on foreign direct investment (FDI) inflow in Morocco within the wider macroeconomic environment. With quarterly data for the period 1998-2023 and the application of the Autoregressive Distributed Lag (ARDL) model, we examine the causal links in short/dynamics and long-run relationships between FDI and the main explanatory variables: fiscal pressure, inflation, real effective exchange developing rate, and political stability. Cointegration A bounds test confirms a long-run relationship between these variables. Notice that the long-run coefficients are not significantly different from zero, which suggests the lack of the presence of a cointegration relationship. In the short-run pattern, however, while tax burden and political instability exert a negative influence on FDI in the short-run, there is a quick adjustment of the disequilibrium to equilibrium rate. The model is also validated using diagnostic tests. The results underscore the importance of having a stable and investment-friendly tax policy complemented by deeper governance and regulatory reforms.  This research contributes to policy debates on how to enhance Morocco’s investment climate and positioning as a regional FDI hub.