Capital Formation and Economic Growth in Mauritius

Capital Formation and Economic Growth in Mauritius: Does FDI matter?ICITI 2012 ISSN: 16941225privatization or outsourcing, then increasing FDI provides the opportunity for government toprivatise or outsource some of its operation. This has been the case in Mauritius with the partialprivatization of the Mauritius Telecom in partnership with France Telecom in 2001. Finally,weak crowding-out is detected between public and private capital formation.Notably, the importance of conditional factors such as financial development; human capital; androad infrastructure is clearly established under the proposed absorptive capacity index. Giventhat Mauritius enjoys a good track record on all three fronts, the domestic absorption capacityhas also quite high, i.e. over 50% in 1976. In addition, although Mauritius has been importantlydependent on trade, openness does not exert significant influence of growth. However, theimpact of openness on FDI and private investment is well established both in the short- and longrun.Thus, on one hand, implying that openness to trade is important in determining theproductivity of both foreign and private capital formation. And, on other hand, trade shocks maysignificantly affect foreign and private capital formation in Mauritius, thus rendering domesticgrowth highly volatile. Finally, although the impact of tax burden on foreign capital formation isnegative, it is not significant for Mauritius.ReferencesAcemoglu D., Johnson S. and Robinson J. (2001). The Colonial Origins of ComparativeDevelopment: An Empirical Investigation. American Economic Review, 91, 1369 – 1401.Agosin, M. R. and Mayer R. (2000). Foreign Investment in Developing Countries: Does itCrowd in Domestic Investment?‟ UNCTAD Discussion Paper, No.146, Geneva: UNCTAD.Aitken B. J., Gordon H. H. and Harrison A. E. (1997), „Spillovers, Foreign Investment, andExport Behavior,‟ Journal of International Economics, 43,103-132.29