Assessing the short-and long-run relationships between fiscal deficit and economic growth in Morocco
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DOIhttp://dx.doi.org/10.21511/pmf.14(4).2025.09
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Article InfoVolume 14 2025, Issue #4, pp. 118-131
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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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JEL Classification (Paper profile tab)H62, O47, F43
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References35
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Tables10
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Figures5
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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
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- 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
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