Capital Formation and Economic Growth in Mauritius
Capital Formation and Economic Growth in Mauritius
Capital Formation and Economic Growth in Mauritius
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1111.51212.5111111.511.5121212.512.5<strong>Capital</strong> <strong>Formation</strong> <strong>and</strong> <strong>Economic</strong> <strong>Growth</strong> <strong>in</strong> <strong>Mauritius</strong>: Does FDI matter?ICITI 2012 ISSN: 16941225Figure 1: impact of capital formation on growthrgdpc <strong>and</strong> privrgdpc <strong>and</strong> pub2.6 2.8 3 3.2 3.4priv1.6 1.8 2 2.2 2.4 2.6pubrgdpc <strong>and</strong> fdi-3 -2 -1 0 1 2FDIUnit root testAlthough aggregate time series tend to be I(0) or I(1), studies such as Harris (2003) <strong>and</strong> Johansen(1995) have contended the existence of I(2) stationary variables. In cases where variables are I(2)stationary, long-run regression tend to be spurious. Also, the ARDL bounds tests procedure is<strong>in</strong>valid when variables are I(2). 8 Therefore, it is crucial to exam<strong>in</strong>e the stationarity status of allvariables <strong>in</strong>cluded <strong>in</strong> the model, to ensure that they are not I(2) or beyond. To assess the order of<strong>in</strong>tegration of the variables the st<strong>and</strong>ard the Augmented Dickey-Fuller (ADF) <strong>and</strong> the Phillips-8 Accord<strong>in</strong>g to Ouattara (2004) the computed F-statistics provided by Pesaran et al. (2001) are not valid for I(2)variables. This is because the lower or upper bounds are assumed to be I(0) or I(1).17
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