Assessing the short-and long-run relationships between fiscal deficit and economic growth in Morocco

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Type of the article: Research Article

Abstract
This paper aims to investigate the short- and long-term relationships between fiscal deficit and economic growth in Morocco over the period 1985–2024. The ARDL bounds test approach is used to determine the existence of a cointegration relationship, while the error correction model (ECM) captures the short-run dynamics. The empirical results indicate that fiscal deficit exerts an immediate and significant negative effect on economic growth, suggesting that deficit financing may generate short-term macroeconomic pressures. However, the lagged effects of the fiscal deficit become positive and significant, reflecting a delayed expansionary impact of fiscal policy. In the long run, fiscal deficit has a negative and significant effect on economic growth, implying that persistent budget imbalances can hinder growth through debt accumulation and crowding-out effects. The bounds test confirms the existence of a stable cointegration relationship between the budget deficit and economic growth in Morocco. Furthermore, the negative and statistically significant error correction term indicates a relatively rapid adjustment towards long-term equilibrium following short-term shocks. These findings highlight the importance of prudent and sustainable fiscal management to support long-term economic growth in Morocco.

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    • Figure 1. Akaike information criterion
    • Figure 2. Error correlogram
    • Figure 3. Jarque-Bera test
    • Figure 4. COSUM test
    • Figure 5. Test of COSUM of squares
    • Table 1. Model variables and proxy variables
    • Table 2. Description of variables and data sources
    • Table 3. Unit root test
    • Table 4. Durbin-Wu-Hausman and Sargan/Hansen over-identification tests
    • Table 5. Weak instrument diagnostics
    • Table 6. Estimation of ARDL model
    • Table 7. Breusch-Pagan-Godfrey test
    • Table 8. F-Bounds test
    • Table 9. Short-run estimation
    • Table 10. Long-run estimation
    • Conceptualization
      Mohammed Hennach
    • Data curation
      Mohammed Hennach
    • Formal Analysis
      Mohammed Hennach
    • Investigation
      Mohammed Hennach
    • Methodology
      Mohammed Hennach
    • Project administration
      Mohammed Hennach, Abdellah Echaoui
    • Resources
      Mohammed Hennach
    • Software
      Mohammed Hennach
    • Visualization
      Mohammed Hennach
    • Writing – original draft
      Mohammed Hennach
    • Writing – review & editing
      Mohammed Hennach, Abdellah Echaoui
    • Supervision
      Abdellah Echaoui
    • Validation
      Abdellah Echaoui