Trade liberalization, FDI inflows, Environmental quality and Economic growth: A comparative analysis between Tunisia and Morocco

The aim of this research is to investigate the economic impacts of the trade liberalization on the environmental quality in Tunisia and Morocco. Specifically, the paper inspects whether liberalization of the trade sector has harmed the quality of the environment in both countries. To this end, we conduct various econometric models: a VECM and cointegration techniques for single country case study and a Panel VECM and Panel cointegration when using data of both country as a group. We also include a dummy variable in each model to see the real impact of trade liberalization for both countries. In the empirical section, we found bidirectional causality between FDI and CO2. This implies that the nature of FDI inflows to Morocco and Tunisia are not clean FDI. These results show that trade liberalization has a negative impact on environmental. The paper concludes that although trade liberalization boosted the economies of both countries by creating new employment opportunities, liberalization has harmed the environment.