Capital Formation and Economic Growth in Mauritius

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Capital Formation and Economic Growth in Mauritius: Does FDI matter?ICITI 2012 ISSN: 16941225and small states and middle income countries (group of countries). Benchmarking Mauritiusagainst average small states and middle income countries makes sense, since it belongs to thetwo categories. Similarly, comparison with Singapore is also justified. Notably, both countriesentered the post-colonial era with a high level of poverty and their post-independence growthstory since mirrors each other. For Singapore the transformation was from a fishing village to abustling economy. And for Mauritius it was from sugar-based to a five-pillar economy.Table 3: gross fixed capital formation (% GDP)Selective sample 1980 1990 2000 2010Mauritius 27 36 28 29Singapore 39 31 30 24Small states 25 24 23 24Middle income Countries 24 23 23 27Source: World Development Indicators (2012)Table 4: fdi net-inflows (% GDP)GrowthSelective sample 1980 1990 2000 2010(%)Mauritius 0.10 1.55 5.80 4.43 4430Singapore 10.42 15.45 17.19 18.13 74Small states 2.32 2.23 4.29 5.13 221Middle income Countries 0.56 0.73 2.57 2.60 464Source: World Development Indicators (2012)In terms of fixed capital formation, Mauritius expended more than small states and middleincome countries, on average. Mauritius and Singapore have achieved more or less similar levels15
Capital Formation and Economic Growth in Mauritius: Does FDI matter?ICITI 2012 ISSN: 16941225of capital formation as a percentage of GDP, however, Singapore showing 6% decline for thelast decade.Regarding foreign capital, for the past four decades FDI (as % GDP) in Mauritius experiencedremarkable progress with growth rate of more than 4000%. To lesser extents, small states andmiddle income countries have witnessed generally upward trends, with average growth in FDIfaring at 221% and 464%, respectively. Although, Mauritius outperforms Singapore in terms ofFDI growth, the situation is reversed when comparing the size of FDI itself. For instance, theshare of FDI for Mauritius was 100 times lower than Singapore in 1980 (0.10 compared to10.42). Interestingly, this gap has been significantly reduced in 2010, i.e. to only 4 times (4.43compared to 18.13). While the performance of Mauritius is commendable on this count, there isyet room for progress and considerable FDI promotion to match Singapore‟s achievements.As preliminary results to the empirical model proposed earlier, partial relationships betweenforeign or private or public capital formation and real income per capita are given in figure 1, forMauritius covering the period 1976-2010. A positive influence on economic growth can beobserved for both FDI and private investment as demarcated the line of best fit. Conversely, forpublic investment an inverse relationship can be observed. Thus, we may infer that private andforeign capital formations are more desirable for growth, compared to public capital formation.While this posits public capital formation as detrimental to growth, it is beyond the scope of thepresent study to assess whether public capital offers more social than economic returns, andexternality effects that public capital goods such as road, schools, hospital, etc., may have oneconomic growth.16
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Capital Formation and Economic Growth in Mauritius

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