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This analysis examines the causal relationship between economic growth, foreign direct investment, trade liberalization, and CO2 emissions in Morocco.

December 11, 2025

Causal interaction between economic growth, FDI, trade liberalization and CO2 emission in Morocco: case study of Morocco with VECM evidence

Key Points

This analysis examines the causal relationship between economic growth, foreign direct investment, trade liberalization, and CO2 emissions in Morocco.
Used qualitative and quantitative approaches to assess economic and environmental trends.
Analyzed annual data from 1991 to 2021 covering GDP, FDI, trade, exportations, and CO2 emissions.
Employed empirical analysis through VECM to examine the interactions between variables.
Trade liberalization and FDI significantly enhance economic growth in Morocco.
Bi-directional causality exists between CO2 emissions, trade, and FDI in the long term.
CO2 emissions are primarily influenced by FDI and trade in the long term, supporting the EKC hypothesis.

Abstract

Purpose Morocco has experienced a significant economic growth over the past decades, driven by strategic reforms that have allowed it to gain in competitiveness as an attractive destination for foreign direct investment (FDI). However, this economic progress has been accompanied with rising carbon dioxide emissions (CO2 emissions), posing major environmental challenges. This article aims to examine the relevance of the EKC (Environmental Kuznets Curve) in Morocco, examining the interaction between foreign direct investment, trade liberalization, economic growth and CO2 emissions while highlighting the Moroccan environmental policy in preventing and reducing climate change risks. Design/methodology/approach This study adopted both qualitative and quantitative methods, using the explorative approach to overview the environmental Moroccan context, and an empirical analyse of gross domestic product (GDP), foreign direct investment (FDI), trade % of GDP (trade liberalization), exportations and CO2 emissions variables, using annual data for over 30 years that cover the period of 1991–2021. Findings The results of empirical analysis argue that FDI, trade and exportation have a significant effect on economic growth in both the short and long term. In the long term, there is a bi-directional causality between CO2 emissions, trade and FDI, while a unidirectional causality runs from CO2 to exportation. Furthermore, the CO2 emissions are influenced by FDI (20.25%) and trade (23.35%) in the long term, confirming the environmental Kuznets Curve (EKC) hypothesis. The findings conclude that the efforts deployed by the Moroccan government in attracting FDI, increasing trade and boosting exportation, should be aligned with the environmental concerns. Originality/value The key contribution of this study, compared to previous studies, lies in the use of trade liberalization and exportation variables as factors that could impact the environment pollution in Morocco. This analysis enhances the originality and value of our findings, given the lack of examination of these variables during this period in the existent literature.

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