Hicham El Bakkali

Type of the article: Research Article

Abstract
This paper investigates the determinants of local public investment in Morocco, a country undergoing decentralization and facing persistent regional disparities. The study aims to identify the key factors driving capital expenditure across Morocco’s 12 regions and their local governments, including regional, provincial, and municipal councils, from 2017 to 2024. A dynamic panel of 96 observations is constructed, and a generalized method of moments (GMM) estimator is applied to address endogeneity, control for regional fixed effects, and account for the temporal persistence of investment. The choice of GMM is supported by prior descriptive analysis and the absence of spatial autocorrelation, confirmed by Moran’s I test. The results show that financial resources play a central role in shaping regional investment levels. Specifically, both own-source revenues and central government transfers have a positive and statistically significant effect on investment, with elasticities of 0.43 and 1.35, respectively. Public debt also contributes positively (0.21%), suggesting its potential as a complementary financing tool. In contrast, personnel expenditure exerts a crowding-out effect (−0.48%), reducing the fiscal space available for investment. Other operating expenditures and regional population show no significant impact. The model is robust (R² = 0.757) and satisfies the Hansen test (p = 0.095). Overall, the findings highlight the decisive role of financial autonomy and the effectiveness of intergovernmental transfers in enhancing the investment capacity of local governments. The results also call for better management of operating expenses to avoid limiting capital investment potential.