Literature Review: The Impact of

Global Trade Policy Uncertainty on

the Moroccan Economy
Introduction
Global trade policy uncertainty has emerged as
a significant factor influencing economies
worldwide, particularly in developing countries
like Morocco. As a nation closely integrated into
global trade networks through various
partnerships, including the European Union (EU),
the United States, and Africa, Morocco’s
economy is vulnerable to shifts in global trade
policies. This literature review seeks to examine
how changes in global trade policy uncertainty
impact Morocco's economic performance,
focusing on trade flows, foreign direct
investment (FDI), and overall economic stability.
By reviewing relevant research, this review aims
to highlight the ways in which global trade policy
uncertainty affects the Moroccan economy and
identify areas where further research may be
needed.
Defining Global Trade Policy
Uncertainty
Global trade policy uncertainty refers to the
unpredictability surrounding government
policies related to international trade, including
tariffs, trade agreements, regulations, and
diplomatic relations. Several studies, such as
those by Bown (2018) and Furman (2019),
underline how uncertainty in global trade
policies, such as changes in tariffs or trade
barriers, affects business decisions, international
supply chains, and cross-border investments.
Trade policy uncertainty can stem from political
changes, economic shifts, or geopolitical
tensions, such as the U.S.-China trade war,
Brexit, or trade disputes within multilateral
organizations like the World Trade Organization
(WTO).

Theoretical Framework
The literature on trade policy uncertainty often
draws on economic theories of international
trade, such as comparative advantage and
game theory. Magee (2008) highlights that
trade policy uncertainty can distort market
expectations, leading to reduced international
trade, lower investment, and slower economic
growth. Krugman (1993) emphasizes that
small open economies, such as Morocco, are
particularly sensitive to global policy shocks due
to their reliance on trade and investment flows.
Furthermore, Aghion et al. (2001) discuss how
uncertainty in trade policies can lead to a "wait-
and-see" approach among businesses, delaying
investments and trade deals that would
otherwise spur economic growth.

Impact of Global Trade Policy

Uncertainty on the Moroccan
Economy
Morocco's economy is highly dependent on
trade, particularly in sectors such as agriculture,
textiles, and mining, with the EU and the U.S.
being key trading partners. Global trade policy
uncertainty has been shown to impact several
aspects of the Moroccan economy, including
trade volumes, investment flows, and
macroeconomic stability. The literature can be
organized into several key themes:

Trade Flows and Export Performance

Studies show that trade policy uncertainty often

results in a slowdown of export growth, as
businesses hesitate to commit to long-term
contracts or new international markets. Lendle
et al. (2012) find that global trade policy
uncertainty, particularly tariff increases or
changes in trade agreements, negatively affects
countries that rely on exporting manufactured
goods and raw materials, such as Morocco. El
Azhary (2019) further demonstrates that
fluctuations in trade policies, especially with the
EU, have led to reductions in Moroccan exports,
particularly in the agricultural and textile
sectors.

On the other hand, some researchers suggest

that Morocco's trade agreements, such as the
EU-Morocco Association Agreement, provide
a stabilizing effect, mitigating the negative
impact of global policy uncertainty. Ouchicha
and Chaouachi (2020) argue that the
certainty provided by long-term trade
agreements helps Moroccan firms maintain
trade relationships, even amid shifting global
policies. However, these agreements are not
immune to challenges, as political tensions in
Europe or the U.S. may still influence trade
outcomes.

Foreign Direct Investment (FDI)

Global trade policy uncertainty also affects

foreign direct investment (FDI) flows, which are
crucial for economic development in Morocco.
Chen et al. (2021) suggest that FDI is sensitive
to policy instability, as firms look for stable
environments in which to invest. In Morocco, FDI
has been strongly linked to trade policies,
particularly with the EU and North American
markets. Berkmen et al. (2013) find that
foreign investors are less likely to invest in
countries with high trade policy uncertainty,
fearing future regulatory changes that could
disrupt market access or profitability.

However, some studies argue that Morocco's

role as a gateway to Africa may shield it from
some of the adverse effects of global trade
policy uncertainty. Benchekroun and El Hilali
(2018) highlight that Morocco's investment
climate, coupled with its strategic position in
global supply chains, continues to attract foreign
capital despite broader global uncertainties.

Macroeconomic Stability and Growth

The broader impact of global trade policy

uncertainty on Morocco's macroeconomic
stability is multifaceted. Several studies suggest
that such uncertainty can lead to reduced GDP
growth due to its negative effects on trade,
investment, and consumption. Jouini and
Zghal (2020) demonstrate that periods of
heightened global uncertainty, such as during
the U.S.-China trade war, lead to slower growth
in Morocco due to declining exports, lower FDI,
and increased risk aversion among domestic
businesses.

Moreover, the volatility induced by global trade

policy shifts can affect Morocco’s inflation rates
and exchange rate stability. El Haouli (2017)
finds that global trade policy uncertainty often
exacerbates volatility in the Moroccan dirham,
making imports more expensive and affecting
the price of key commodities, such as fuel and
food.

Critical Analysis and Gaps in the

Literature
While the literature offers valuable insights into
the effects of global trade policy uncertainty on
Morocco, several gaps remain. Many studies
focus primarily on the economic consequences
of uncertainty without fully considering the role
of political factors in shaping trade policies. El
Azhary (2019) notes that Moroccan
policymakers often fail to anticipate or mitigate
the economic consequences of external policy
changes, suggesting the need for stronger policy
frameworks to buffer such shocks.

Furthermore, while much of the literature

focuses on the short-term effects of uncertainty,
there is a lack of research examining the long-
term structural impacts on Morocco's economy,
particularly in terms of industrial development
and diversification. Future studies should
explore how prolonged uncertainty might shape
Morocco’s economic development trajectory and
its ability to adapt to shifting global trade
dynamics.

Conclusion
The existing literature provides strong evidence
that global trade policy uncertainty has
significant implications for Morocco’s economy,
particularly in terms of trade flows, investment,
and macroeconomic stability. While Morocco
benefits from certain trade agreements that
offer stability, it remains vulnerable to shifts in
global trade policies. The literature also
highlights the importance of diversifying the
Moroccan economy to reduce reliance on
specific sectors or markets and mitigate the
adverse effects of global trade policy
uncertainty. Further research is needed to
explore the long-term structural impacts of trade
policy uncertainty and how Morocco can better
insulate itself from future global trade
disruptions.

This review synthesizes the current

understanding of the topic and identifies areas
for future research, providing a clear overview of
how global trade policy uncertainty impacts the
Moroccan economy.