Foreign Direct Investment and Economic Growth in Morocco: Revisiting the Evidence with 2SLS

Background and Motivation: Foreign direct investment (FDI) has been widely examined as a potential driver of economic growth, yet empirical evidence for Morocco remains inconclusive due to methodological limitations and endogeneity concerns. This study re-examines the FDI–growth relationship in Morocco over the period 1977–2022 using a five-equation simultaneous system estimated by Two-Stage Least Squares (2SLS). The framework jointly models GDP growth, FDI, exports, human capital, and domestic investment in order to account for bidirectional relationships among the main variables. Methods: Unit root and Johansen cointegration tests support the existence of long-run equilibrium relationships among the series, while a Chow test identifies a significant structural break in 2003 (F = 11.43, p = 0.003). Diagnostic tests confirm instrument relevance (Cragg–Donald F > 10) and fail to reject over-identification validity (Hansen J p > 0.10). Results: The results indicate a positive but statistically fragile association between FDI and economic growth—positive in sign across all specifications but sensitive to sample size and instrument choice (β = 2.179, t = 1.728, p = 0.092; 90% CI: [−0.341, 4.699] in constant 2015 USD billions). FDI is associated with growth primarily through indirect channels—particularly export expansion and human capital accumulation—rather than through direct capital deepening alone, consistent with an absorptive-capacity interpretation. The estimated structural break in 2003 reflects a broader package of concurrent institutional and macroeconomic reforms; the model cannot isolate the independent contribution of FDI within this composite effect. The results should therefore be interpreted as evidence of long-run reduced-form associations rather than definitive causal effects. Conclusions: Overall, the study contributes to the Morocco-specific literature by integrating simultaneous equations, indirect transmission channels, and structural break analysis within a unified long-run framework.