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This paper has benefited from contributions from a number of colleagues at the Fund. Yuan Xiao and Rikhil Bhavnani were responsible for the analytical work on factor productivity and the gravity model, respectively. Very useful comments were provided by Trevor Alleyne, Gamal El-Masry, José Fajgenbaum, Josh Felman, Larry Hinkle, Gunnar Jonsson, Arnold Macintyre, Emilio Sacerdoti, and Gene Tidrick. Mr. Cuttaree, the Mauritian Minister of Trade and Industry, provided valuable insights on the early politics of the country. Pamela Mjandana provided excellent research assistance. Above all, many of the ideas in the paper are the joint product of years of discussions with Aaditya Mattoo.
In many cases, growth decelerated or ground to a halt around the time of the oil and debt crises which Rodrik (1999) refers to as the growth collapse.
These assessments exclude the Seychelles.
Meade’s development strategy hence proposed wage restraint, agricultural diversification, a rapid change in industry structure, overseas welfare assistance, a system of welfare benefits for the unemployed, emigration of workers to other British colonies, and an effective family planning system.
The fast-growing countries include Thailand, Malaysia, Indonesia, China, Hong Kong SAR and Singapore.
Log of real GDP per economically active population in 1965.
Probability that 2 randomly selected people from a country will not belong to the same ethnic or linguistic group.
Growth of working age population minus growth of total population between 1965 and 1990.
1 if it is landlocked, 0 if it is not. For a group it depicts the fraction of countries landlocked.
Remoteness of a country is its average distance to trading partners, weighted by their share in the world GDP.
It is estimated that over 30 percent of the labor force in textile and clothing sector is imported.
However, Mauritius has been considerable less open than the fast growing countries of East Asia whose openness ratio increased from 85% to 180% between 1973 to 2000.
The Sachs and Warner (1995) results have been criticized on a number of grounds and in particular by Rodriquez and Rodrik (2000). But that is not really relevant to the argument made below.
Note that duty drawbacks and equivalent schemes do not entail export subsidization, they merely offset the bias from restrictive import policies.
The main incentives included a 10 year tax holiday on retained earnings, and a partial tax holiday for periods beyond that; free repatriation of capital and profits; and preferential interest rates for firms in the EPZ.
For example, in 1984, 79 percent of total employment in the EPZs was female, compared with 31 percent in the rest of the economy (Hein, 1988).
The impact of the corporate tax incentives on exports could not have been large because most non-EPZ manufacturing firms also benefited from the numerous tax concessions.
Most, but not all of these rents accrued to producers because of the export tax on sugar, which has averaged about 12 percent between 1975 and 1995.
The quota rents are actually an upper bound under the assumption of perfectly elastic export supply.
The percent of apparel exports covered for the EU and USA for the three-time periods are 45 and 68, 93 and 84 and 80 and 94 percent, respectively.
Interestingly, the WTO rules do not treat differential labor regulations between the export and other sectors as a subsidy.
Of course, given the public good nature of ideas, even very small initial amounts imported from abroad could have subsequently been adopted by domestic firms. Thus, substantial domestic ownership of the EPZ firms need not invalidate the Romer insight.
The measure of institutional quality is due to Acemoglu et. al. (2000). The index of institutional quality is in fact the fitted value from the first stage of the 2SLS regressions. The measure captures the protection against the risk of expropriation of property.
For our sample, the correlation between the ICRGE index and democracy and the ICRGE index and index of participation are respectively, 0.71 and 0.72. The correlation between democracy and participation index is 0.95.
Ideally one should recognize the two-way relationship between institutions and economic growth. Several attempts have been made to deal with the endogeneity of institutions by using an instrumental variables approach. Mauro (1995) instruments for corruption using ethnolinguistic fractionalization which is not such a good instrument after all if growth is accompanied with emergence of a centralized state and integration via markets, moreover as Easterly and Levine (1997) argue, the further problem with ethno linguistic fractionalization is that it can directly affect performance by causing political instability. Hall and Jones (1999) use distance from equator as instrument since the distance from equator proxies “Western Influence.” Acemoglu et al. (2000) critique Hall and Jones on empirical grounds that it is not easy to argue that Western influence led to better institutions and cite as an example the Belgian influence in Congo. To our knowledge, Acemoglu et al. (2000) appears to be the best attempt at getting the right instrument for institutional quality.
Acemoglu et. al. (2000) instrument for institutional quality in an equation with the log of income per capita (rather than growth of this variable).
The interesting result from a general perspective is that instrumenting for institutions trumps openness. The openness variable in the SW regressions is no longer significant once the 2SLS methodology is adopted, nor are the geography variables. In fact the central message of the Acemoglu et. al. paper is that once institutions are controlled for, geography does not matter. Sachs and McArthur (2001) contest this result.
*-significant at 99%**, significant at 95%, ***-significant at 90%.
Negative and significant coefficient implies under trader while positive and significant coefficient implies overtrade. See Bhavnani, Subramanian, and Tamirisa (forthcoming).
Because of the high coefficient of the initial growth rate (between 1960-75), the Rodrik regressions come very close to being a conventional growth regression for the period 1975-89 rather than a “change in growth” regression.
Another factor that needs to be taken into account is the role of the services sector in Mauritius in explaining trade performance. Africa is afflicted by high trade costs. Despite its geographical remoteness, Mauritius has been able to keep transaction costs under control. Ports have been well managed and have rendered efficient service, the financial sector is well developed, and telecommunications fairly efficient.
The first Prime Minister, Sir Seewoosagur Ramgoolam, was a Fabian socialist and wedded ideologically to a socialist model of development.
The extraordinary effort devoted to assuaging minority interests is reflected in the ‘best loser’ system introduced under the British which guaranteed adequate representation to all the communities in Mauritius, even if they did not emerge victorious in elections. This system has helped to keep the participation and interest of the minorities groups in the democratic process.