Capital Formation and Economic Growth in Mauritius

Capital Formation and Economic Growth in Mauritius: Does FDI matter?ICITI 2012 ISSN: 16941225al. (1993, p. 233), ifis negative and significant variables show convergence to their long-runequilibrium.rgdpctprgdpcqt i i t i i t i i t ik 1 i 1 i 1 i 1 i 1qf p g zprivpubqfdiqiztiECMt 1ut[8]Table 10 shows the results for the empirical ARDL(1,0,0,1,1,0) model. 14 The model generatesone-period lag of real income per capita, FDI, and absorption capacity as additional variables.The coefficient of lagged of the error correction mechanism, ecm(–1), is significant at -0.11367,which imply a statistically significant adjustment coefficient. This also suggests that around onetenthof the discrepancy between the long-run equilibrium value and the current value of the realincome per capita is corrected within one year. Several diagnostic test, including Breusch-Godfrey serial correlation LM test, ARCH test, Jacque-Bera normality test and Ramsey RESETspecification test, are used to verify the robustness of the model. More importantly, the modelhas the correct functional form, which ensures validity and reliability of results.14 The optimal lag lengths in the ARDL model are chosen by values that minimise the Schwarz Bayesian Criterion(SBC)21