Foreign direct investment in manufacturing: an ARDL cointegration analysis of sectoral performance in Morocco

This study examines the impact of foreign direct investment (FDI) on the performance of Morocco’s manufacturing sector over the period 1998–2019. While FDI is widely considered a catalyst for industrial development, its effects remain heterogeneous and highly dependent on sectoral and institutional conditions. Using the autoregressive distributed lag bounds testing approach and Toda–Yamamoto causality analysis, this paper investigates both the short- and long-run relationships between manufacturing FDI and industrial value added. The results reveal a differentiated temporal effect. In the short run, manufacturing FDI exerts mixed effects on industrial performance, with positive immediate impacts followed by negative lagged effects, suggesting adjustment costs and competitive pressures on domestic firms. However, the long-run estimates confirm the existence of a stable and positive cointegration relationship between manufacturing FDI and industrial value added. The findings further indicate that export capacity and institutional quality significantly strengthen the positive contribution of FDI, whereas the technology gap and exchange rate volatility constrain industrial performance. The causality analysis identifies unidirectional causality running from manufacturing FDI to industrial value added, exports and exchange rate dynamics, alongside bidirectional relationships between exports and industrial growth as well as between institutional quality and the exchange rate. Overall, the study highlights that the developmental impact of FDI in Morocco depends not only on the volume of inflows but also on the quality of institutions, absorptive capacity and export-oriented industrial integration. These findings provide important policy implications for enhancing Morocco’s industrial competitiveness and maximising the long-term benefits of manufacturing-oriented FDI.