Financial development and economic growth: an ARDL approach for the case of the small island state of Mauritius

Abstract

The article investigates the dynamic empirical link between financial development and economic performance for the case of the developing small island state of Mauritius using a unique time-series data set over the period 1952 to 2004. The analysis was performed using two different proxies for financial development in an ARDL framework. The results suggest that financial development have been contributing to the output level of the economy in both short and long run. It thus highlights the economic importance of financial development and provides new evidence for the case of island economies using recent cointegration approach.

Notes

¹Refer to King and Levine (1993) for a comprehensive theoretical overview.

²There are however some empirical works which could not establish a significant link, for instance, Dawson (2003), Ram (1999) among others.

³Pesaran and Smith (1998) found that SBC is preferable to AIC, as it is a parsimonious model that selects the smallest possible lag length, while AIC selects the maximum relevant lag length.