The Dual Role of Public Debt in Morocco’s Investment Dynamics: Evidence from the ARDL Approach
Keywords:
Public debt, investment, ARDL model, fiscal policy, Morocco
Abstract
This study examines the effect of public debt on investment performance in Morocco over the period 1990–2024. Gross fixed capital formation serves as the dependent variable, while public debt, government expenditure, inflation, and population growth are used as explanatory variables. Using the Autoregressive Distributed Lag (ARDL) approach, the analysis captures both short-run and long-run dynamics. The results reveal that in the long-run, public debt has a negative and statistically significant effect on investment, which suggests that excessive indebtedness challenges capital formation. In the short-run, only public debt has a temporary positive impact that fades over time. The negative and highly significant error correction term confirms a stable long-run relationship between the variables. Diagnostic tests indicate that the model is free from serial correlation, heteroskedasticity and instability. Globally, the findings underscore that while debt can initially stimulate investment, sustained debt accumulation could hinder it, highlighting the importance and need for prudent debt management and more efficient use of borrowed resources in Morocco.
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References
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36. Picarelli, M. O., Vanlaer, W., & Marneffe, W. (2019). Does public debt produce a crowding-out effect for public investment in the EU? (European Stability Mechanism Working Paper No. 36). European Stability Mechanism. https://doi.org/10.2139/ssrn.3376471
37. Raihan, A., Rahman, S. M., & Sarker, T. (2025). Saudi Arabia’s path to carbon neutrality: Analysis of the role of Hajj pilgrimage, energy consumption, and economic growth. Innovation and Green Development, 4(1), 100203.
38. Reis, R. (2022). Debt revenue and the sustainability of public debt. Journal of Economic Perspectives, 36(4), 103–124. https://doi.org/10.1257/jep.36.4.103
39. Saint-Paul, G. (1992). Fiscal policy in an endogenous growth model. The Quarterly Journal of Economics, 107(4), 1243–1259. https://doi.org/10.2307/2118387
40. Say, J. B. (1880). A treatise on political economy: On the production, distribution and consumption of wealth. (C. R. Prinsep, Ed.). Claxton, Remsen and Haffelfinger.
41. Taghouti, Y., Driyasse, S., & Abdelbaki, N. (2024). The impact of public and private investment on economic growth in Morocco: An empirical analysis. International Journal of Economics and Management Sciences, 3(3), 211–228.
42. Tarawalie, A. B., & Jalloh, T. (2021). External debt and economic growth nexus in the ECOWAS: A threshold analysis. International Journal of Business and Economics Research, 10(5), 178–186.
43. Yangailo, T. (2024). Public debt–economic growth nexus: A systematic literature review. Journal of Developing Economies, 9(2), 259–281. https://doi.org/10.20473/jde.v9i2.54959
44. Zeroual, N., & Aasri, M. R. (2025). Public debt: Facilitator or barrier? A literature review of its impact on economic growth. https://doi.org/10.5281/zenodo.17093926
2. Anyanwu, A., Gan, C., & Hu, B. (2018). Government domestic debt, private sector credit, and crowding out effect in oil-dependent countries. Private Sector Credit, and Crowding Out Effect in Oil-Dependent Countries (July 15, 2018).
3. Antunes, A., & Ercolani, V. (2020). Public debt expansions and the dynamics of the household borrowing constraint. Review of Economic Dynamics, 37, 1–32.
4. Ardagna, S., Caselli, F., & Lane, T. (2007). Fiscal discipline and the cost of public debt service: Some estimates for OECD countries. The BE Journal of Macroeconomics, 7.
5. Babu, J. O., Gisore, N., & Lawrence, K. (2014). Does public debt crowd-out public investment in East Africa Community? Research Journal of Economics, 2(4). https://researchjournali.com/pdf/512.pdf
6. Bensouda, G., & Oukassi, M. (2024). Assessing the low-carbon economy transition in Morocco: The role of renewable energy, trade, and economic growth. Revue Marocaine des Sciences Économiques et de Gestion, 10(2). https://doi.org/10.48375/IMIST.PRSM/remses-v10i2.57113
7. Bunde, A. O. (2024). Public debt, investment and economic growth dynamics: Do geographical proximity and spatial spillover effects matter? Regional Science Policy & Practice, 16, 100059.
8. Çerpja, T., & Kola, F. (2024). The link between public investment strategy and public debt: An empirical assessment. Corporate & Business Strategy Review, 5(4), 180–189.
9. Chang, T., & Chiang, G. (2011). Regime-switching effects of debt on real GDP per capita: The case of Latin American and Caribbean countries. Economic Modelling, 28, 2404–2408.
10. Churchman, N. (2001). David Ricardo on public debt (1st ed.). Palgrave Macmillan.
11. De Mendonça, H. F., & Brito, Y. (2021). The link between public debt and investment: An empirical assessment from emerging markets. Applied Economics, 53(28), 5864–5876. https://doi.org/10.1080/00036846.2021.1931008
12. Doua, W., & Khariss, M. (2025). Les Partenariats Publics-Privés (PPP) comme levier de développement des infrastructures: Revue de littérature. https://doi.org/10.5281/zenodo.17093404
13. Eisner, R. (1992). Deficits: Which, how much, and so what? The American Economic Review, 82, 295–298.
14. Fayed, M. E. (2013). Crowding out effect of public borrowing: The case of Egypt. International Research Journal of Finance and Economics, 107, 28–38.
15. Georgiev, B. (2014). Implications of public debt on economic growth and development: A European perspective. Aestimatio: The IEB International Journal of Finance, 2014(9), 48–67. https://doi.org/10.5605/IEB.9.3
16. Hakimi, A., Boussaada, R., & Karmani, M. (2019). External debt, investment, and economic growth: A seemingly unrelated regression model for low-income countries. The Journal of Economic Integration, 34(4), 725–745. https://doi.org/10.11130/jei.2019.34.4.725
17. Heinemann, F. (2006). Factor mobility, government debt, and the decline in public investment. International Economics and Economic Policy, 3, 11–26. https://doi.org/10.1111/j.1475-5890.2011.00126.x
18. Hofman, B., & Reisen, H. (1991). Some evidence on debt-related determinants of investment and consumption in heavily indebted countries. Weltwirtschaftliches Archiv, 127, 281–299.
19. Islam, A. M., & Nguyen, H. (2024). Distributional crowding out effects of public debt on private investment in developing economies (Policy Research Working Paper No. 10786). World Bank. http://hdl.handle.net/10986/41650
20. Kamiguchi, A., & Tamai, T. (2023). Public investment, national debt, and economic growth: The role of debt finance under dynamic inefficiency. Journal of Macroeconomics, 77, 103535. https://doi.org/10.1016/j.jmacro.2023.103535
21. Kassouri, Y., Altıntaş, H., Alancıoğlu, E., & Kacou, K. Y. T. (2021). New insights on the debt-growth nexus: A combination of the interactive fixed effects and panel threshold approach. International Economics, 168, 40–55.
22. Keynes, J. M. (1936). The general theory of employment, interest, and money. Macmillan and Co.
23. Khan, R. E. A., & Gill, A. R. (2009). Crowding out effect of public borrowing: A case of Pakistan.
24. Kostarakos, I. (2022). Public debt and aggregate investment in the EU. Applied Economics Letters, 29(15), 1358–1364. https://doi.org/10.1080/13504851.2021.1931655
25. Krugman, P. (1988). Financing vs. forgiving a debt overhang. Journal of Development Economics, 29, 253–268.
26. Leduc, S., & Wilson, D. (2013). Roads to prosperity or bridges to nowhere? Theory and evidence on the impact of public infrastructure investment. NBER Macroeconomics Annual, 27(1), 89–142.
27. Liaqat, Z. (2019). Does government debt crowd out capital formation? A dynamic approach using panel VAR. Economics Letters, 178, 86–90.
28. Marmullaku, B., Avdimetaj, K., & Haziri, A. (2021). Impact of public investment through public debt on economic growth: Empirical analysis in European countries in transition. Transition Studies Review, 28(2), 93–104.
29. Medeiros, O. L., Cabral, R. S. V., Baghdassarian, W., & Almeida, M. A. (2005). Public debt strategic planning and benchmark composition. National Treasury Secretariat, Ministry of Finance.
30. Modigliani, F. (1961). Long-run implications of alternative fiscal policies and the burden of national debt. The Economic Journal, 71, 730–755. https://doi.org/10.2307/2228247
31. Mohanty, A. R., & Mishra, B. R. (2016). Impact of public debt on economic growth: Evidence from Indian states. Vilakshan, XIMB Journal of Management, 13(6), 1–21.
32. Ncanywa, T., & Mamokgaetji, M. M. (2018). Can public debt stimulate public investment and economic growth in South Africa? Cogent Economics & Finance, 6(1), Article 1516483. https://doi.org/10.1080/23322039.2018.1516483
33. Ntshakala, P. L. (2015). Effects of public debt on economic growth in Swaziland. International Journal of Business and Commerce, 5, 1–24.
34. Pascal, E. C. (2012). Public debt management. UNESCO–EOLSS Encyclopedia, ref. 6.28.39.EOLSS.
35. Penzin, D. J., Salisu, A., & Akanegbu, B. N. (2022). A note on public debt–private investment nexus in emerging economies. Bulletin of Monetary Economics and Banking, 25(1), Article 9. https://doi.org/10.21098/bemp.v25i1.1988
36. Picarelli, M. O., Vanlaer, W., & Marneffe, W. (2019). Does public debt produce a crowding-out effect for public investment in the EU? (European Stability Mechanism Working Paper No. 36). European Stability Mechanism. https://doi.org/10.2139/ssrn.3376471
37. Raihan, A., Rahman, S. M., & Sarker, T. (2025). Saudi Arabia’s path to carbon neutrality: Analysis of the role of Hajj pilgrimage, energy consumption, and economic growth. Innovation and Green Development, 4(1), 100203.
38. Reis, R. (2022). Debt revenue and the sustainability of public debt. Journal of Economic Perspectives, 36(4), 103–124. https://doi.org/10.1257/jep.36.4.103
39. Saint-Paul, G. (1992). Fiscal policy in an endogenous growth model. The Quarterly Journal of Economics, 107(4), 1243–1259. https://doi.org/10.2307/2118387
40. Say, J. B. (1880). A treatise on political economy: On the production, distribution and consumption of wealth. (C. R. Prinsep, Ed.). Claxton, Remsen and Haffelfinger.
41. Taghouti, Y., Driyasse, S., & Abdelbaki, N. (2024). The impact of public and private investment on economic growth in Morocco: An empirical analysis. International Journal of Economics and Management Sciences, 3(3), 211–228.
42. Tarawalie, A. B., & Jalloh, T. (2021). External debt and economic growth nexus in the ECOWAS: A threshold analysis. International Journal of Business and Economics Research, 10(5), 178–186.
43. Yangailo, T. (2024). Public debt–economic growth nexus: A systematic literature review. Journal of Developing Economies, 9(2), 259–281. https://doi.org/10.20473/jde.v9i2.54959
44. Zeroual, N., & Aasri, M. R. (2025). Public debt: Facilitator or barrier? A literature review of its impact on economic growth. https://doi.org/10.5281/zenodo.17093926
Published
2025-12-07
How to Cite
Zeroual, N., Doua, W., Aasri, M. R., & Khariss, M. (2025). The Dual Role of Public Debt in Morocco’s Investment Dynamics: Evidence from the ARDL Approach. European Scientific Journal, ESJ, 48, 130. Retrieved from https://eujournal.org/index.php/esj/article/view/20404
Section
ESI Preprints
Copyright (c) 2025 Nouhaila Zeroual, Wissal Doua, Mohammed Rachid Aasri, Mohammed Khariss
This work is licensed under a Creative Commons Attribution 4.0 International License.
