Foreign Capital Inflows, Trade Openness, and Sustainable Growth Dynamics in Morocco

Abstract

This study presents a comprehensive evaluation of the theoretical perspectives and quantitative impacts of Foreign Direct Investment in developing economies, widely identified as the Global South. By applying robust methodological techniques, including vector error correction model estimation, this research investigates the multidimensional influence of Foreign Direct Investment on economic growth, environmental sustainability, and energy consumption. The findings reveal a complex and non-linear association between Foreign Direct Investment and major economic indicators, frequently influenced by institutional quality, absorptive capacity, and sector-specific conditions. The results support a U-shaped association between Foreign Direct Investment and renewable energy consumption at the global level, where early-stage impacts may remain negative but gradually become positive as economies progress and adopt advanced technologies. In addition, the analysis demonstrates that the interaction between Foreign Direct Investment and economic growth substantially influences renewable energy consumption, supporting the trade-off theory and race-to-the-bottom hypothesis instead of the conservation hypothesis. For policymakers, this integrated assessment provides important guidance for formulating effective policies that enhance the advantages of Foreign Direct Investment while reducing possible adverse externalities, especially within environmental sectors where the pollution haven hypothesis continues to be a debated framework.