Effect of Financial Development on the Mauritius

Effect of fiscal outgrowth on the MauritiusChapter OneIntroductionThe insane asylum chapter of this dissertation provides the justification and purpose of the rise, explains the research problem itself, defines the research objectives and highlights the sphere of the piece of work.Background to the researchPolicymakers and fiscal experts usually ack none guidege that monetary maturement- that is, a well-functioning financial system contributes to sparing fruit. A well-organised financial system provide encourage scotch increase through several channels by providing effective financial institutions and markets that help to overcome market resistance introduced by information asymmetries and transaction costs.Empirical studies on the contact lens between financial development and frugal growth have been analysed mostly by gull rural cases until lately because of lack of enough time series information for developing countries. These researches have shown regularly t hat financial development is an important determinative of sparing growth. However, even though the conclusion of these studies provides an appropriate guideline for the finance-growth nexus, it can non be applied to all economies, as each specific country is modulate by its own financial institutions and policies. In this dissertation we are pass to analyse the finance-growth relationship for one country only, Mauritius).The island of Mauritius is a fascinating country to study, because Mauritius over the past four decades have evolved from a mono-crop economy, depending on the issue of sugar-cane to a mixed economy, pushed by export-oriented manufacturing, tourism and hospitality and the more juvenile developing orbits financial services and Information Communication and Technology. Mauritius is considered an upper affection income group in the Sub-Saharan Africa (developing only). It has been upgrading its position in international indexes for the dominate of law (first in the Sub-Sahara Africa on rule of law index), investing (14th worldwide on the excuse of starting a business and the strength of investor protection) and ease of doing business (ranking 19th of 183 countries on the 2012 Doing Business Index).Since the late 1980s, the financial orbit has been transformed to become the ordinal pillar of the Mauritian economy, with the set up of the pipeline Exchange in 1989 and the fiscal Services Commission in 2001. Mauritius has created various bodies to regulate the financial sector in its various aspects and unassailable efforts have been made to revamp the legislative framework in the non-banking financial services sector by introducing amendments and new pieces of legislation. On a macroeconomic level Mauritius has also been doing well in the light of the world crisis in recent years. The government of Mauritius has attempted to mitigate the negative consequences of the global economic crisis through an appropriate policy mix. Thus, as the financial sector has a very important role to play in the development of the economy, this office that we have a good database for sufficient number of years to undertake this study.Purpose of the study look fores in the finance-growth nexus have been mainly on whether financial development has a positive effect on economic growth in Mauritius. In this context, we have tried to go deeper in this study by empirically analysing the co integration and causal link between financial development and economic growth in Mauritius and ascertain the effect of financial development and economic growth on each other by applying impulse response functions and variance decomposition techniques.The study analyses the effect of financial development on economic growth in Mauritius and covers the period 1981 to 2012. The period coincides with the rapid growth of the financial services sector in Mauritius in the 1980s, and is sufficiently wide and allows comparison with other studies.Aims, Ob jectives, Research Questions and hypothesesResearch objectivesThe main aim of this study is to determine the effect of financial development on economic growth for Mauritius. The following specific objectives leave be answeredTo investigate whether the increase in domestic credit to the snobbish sector to Gross Domestic Product (gross domestic product) has led to improvement in GDP per capita.To investigate whether the increase in GDP per capital has led to the increase in domestic credit to the private sector to GDP.The long run and short run relationship between economic growth and financial development.The response of domestic credit to the private sector to GDP to shocks from the contrary variables used in the studyThe response of GDP to shocks from the different variables used in the study.Research questionsThroughout this study we result try to find solutions to the following questionsDoes financial development lead to economic growth in Mauritius or does economic growth l ead to financial development?Is there a bi-directional causality between financial development and economic growth in the short-run and long-run?Research hypothesesResearch Hypotheses considered in the studyH0 The financial development and economic growth indicators are not stationaryH1 The financial development and economic growth indicators are stationaryH0 There is no co integration equation among the variables used in the studyH1 There is co integration equation among the variables used in the studyH0 There is short run causality path from free lance variables to dependent variablesH1 There is no short run causality running from independent variables to dependent variables, which means that there is long run causality. arena of the studyThe study examines the relationship between financial development and economic growth in Mauritius and covers the period 1981 to 2012. The period starts almost in the very(prenominal) time that the economy of Mauritius was undergoing reforms i n the financial sector with the creation of the comport Exchange of Mauritius and later on the creation of the monetary Services Commission. boilers suit structure of the dissertationThis dissertation has been organized into five chapters. The first chapter was an launch to the proposed research. The second chapter will provide some relevant details on the financial development and economic growth in Mauritius. The third chapter will perform a review of theoretical concepts and empirical tests conducted worldwide concerning the financial development and economic growth with special attention to developing countries. The fourth chapter will describe the methodology to be used for the proposed study, the data collection process together with analysis performed on same and the results will be interpreted graphically with discussions. 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