Free trade agreements and investment law reforms in the context of FDI: a nonlinear assessment of economic and environmental effects

Purpose This study aims to analyze the role of free trade agreements (FTAs) and legal reforms (LRs) in attracting foreign direct investment (FDI), as well as their economic and environmental impacts. Design/methodology/approach Nine FTAs and six LRs implemented by Morocco (MAR) during 1996–2024 are analyzed using Non-Parametric Generalized Additive Models with integrated smoothness to capture the nonlinear (additive and interactive) effects of FDI, FTAs and LRs. This decomposition identifies which trade or legal policies influence economic growth and the environment and enables comparison of their impacts. Findings The results show that the economic and environmental effects of FDI are strongly shaped by trade and legislative policies, highlighting significant differences in their impacts across individual FTAs and LRs. FTAs have a stronger impact on economic growth, with Middle Eastern FTAs, such as FTA6 (TUR) and FTA5 (UAE), associated with an increase in GDP of approximately 710bn and 680bn, respectively. European FTAs, including FTA9 (UK), contribute moderately to growth. African FTAs, notably FTA7 (AGA) and FTA8 (AFR), generate moderate growth. Major legal reforms, LR1 (Investment Charter) and LR2 (Creation of AMDI), contribute moderate economic growth of 430bn and 260bn, respectively. On the environmental front, LRs have a more pronounced influence. LR4 (Bilateral Agreements) and LR3 (Drop in FDI) increase emissions by 69. 2 Mt and 66. 8 Mt, respectively, surpassing FTA9 (UK), which increases emissions by 68. 7 Mt. FTA7 (57. 1 Mt) and FTA8 (42. 9 Mt) also have notable but slightly lower impacts. Practical implications This study demonstrates that FTAs and legal reforms must be designed not just for economic gain but to mitigate environmental risks. Originality/value By addressing an overlooked aspect of international relations, this study clarifies their complex effects on growth and the environment, highlighting the importance of integrating regional and nonlinear interactions in policy development.