Impact of the divestment of Spanish FDI on economic growth of Morocco: an econometric analysis of 13 country-of-origin


Purpose
This study aims to identify the impact of foreign direct investment (FDI) on economic growth in Morocco depending on each origin country, including Spain. This study uses a linear model to measure the marginal impact of FDI on the growth of Morocco. This marginal effect allows to compare the different effects of FDI among countries of origin. Also, the marginal effect helps to measure the rate of substitution between FDI in an easier way than the other specifications of the model. The second step determines the substitute for Spain in case he decides to divest its FDI from Morocco to maintain the economic growth.


Design/methodology/approach
Using data of FDI from 13 countries of origin from 1995 to 2020 and two estimation methods (Dynamic Ordinary Least Squares and Autoregressive model), this study aims to measure the marginal impact of the divestment of FDI from Spain on growth. Then this study estimates how much Morocco should attract FDI from other countries when Spain divests. This study uses the differential calculus, assuming a perfect substitution between FDI from different countries. This calculus implies an indifference curve between FDI from Spain and FDI from another country where we deduct the substitution rates between FDI.


Findings
The results indicate that the FDI from Spain and France are the only ones to impact positively Moroccan economic growth. The FDI coming from Germany, Holland, China and Turkey have a negative impact, whereas those from the USA, Italy, UK, Switzerland and Gulf countries: Saudi Arabia, Kuwait and UAE have an insignificant effect. Second, using the differential calculus, the result indicates that when Spain divests 1m dirhams of its investments from Morocco, France would have to increase its own by 0.1509m dirhams so that Morocco could maintain its economic growth.


Research limitations/implications
The research focuses only on economic growth, neglecting the impact on other aggregates, such as total factor productivity, technology transfer and employment. Also, this research marginalized the sectorial analysis of FDI by the source to better understand the divergent effects.


Originality/value
This paper fills a research gap when analyzing the effect of FDI on the host economy depending on country-of-origin. In addition, it contributes to the body of literature by constructing the rate of substitution between the different sources of FDI to adapt to divestment policy.
