Modeling Long-Run Determinants of Economic Growth for the Mauritian Economy

This study develops a macroeconometric model for the Mauritian economy to explain long-run determinants of the country’s economic performance. The Engle-Granger (1987) two-step cointegration methodology is adopted to capture both short-run and long-run dynamic properties of the macroeconomy. The empirical findings indicate that labor, domestic investment, prices and financial development play a pivotal role in the economic growth process of the Mauritian economy. More notably, the contribution of financial development to the economic performance of the domestic economy is positively influenced by output, foreign direct investment, human capital, trade liberalization and price stability. Policy should emphasize the role of FDI-financing for education and training and capital investment projects. Furthermore, the promotion of trade and financial liberalization as well as the maintenance of macroeconomic stability is crucial to enhance financial deepening and in turn sustained economic performance.