Finance and Development in Mauritius Post Cold War

This study evaluates macroeconomic variables' effect on economic development in Mauritius from 1981 to 2019. The study employs the vector error correction (VECM) model for estimation. The long-run estimated results indicates a positive feedback between the variables, export, LOG(EXPT), external debt, LOG(DEBT), foreign direct investment (FDI), interest rate (INTR), the per capita GDP growth and a negative feedback between the per capita growth of the economy and the gross fixed capital formation LOG(GFCF(-1)), import (LOG(IMP)), and exchange rate (EXCH). The impulse response function (IRF) result indicates that the response of PERCAP to itself increases instantly and significantly and decreases in the short-run but continues with a positive sign along the horizons in the long-run. The response of GFCF to per capita shock increases immediately and continues to a positive shock in both short-run and the long-run horizon. The monetary policy variable,s INTR and EXCH, respond to per capita increase continues with the positive signs in both the short and long-run.