The Services Sector and Economic Growth in Mauritius. A Bounds Testing Approach to Cointergration

Abstract

This paper examines the long run and short run impact of the services sector on economic growth in Mauritius. Using an augmented aggregate production function growth model, we apply the bounds testing approach to cointegration to assess the impact of different activities in the services sector on economic performance on economic performance. The Autoregressive Distributed Lag (ARDL) model is applied on time series data over the period 1975 to 2009. Our results firstly show that the services sector contributes positively to economic growth with a larger growth impact from whole sale and retail trade, followed by the transport and communication sector and the financial sector. Second, we observe the existence of a long run causal relationship from the services sector to GDP per capita while short run causality runs from per capita GDP to services sector performance. Our findings further confirm the stability of the relationship between services sector development and economic growth for a small island economy like Mauritius.

Keywords: Services Sector Development, ARDL cointegration, Causality, Cointegration.