Mauritius : an export-led economic success
Date
1992
Authors
Woldekidan, Berhanu
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Abstract
In the 1960s and early 1970s, Mauritius had problems of low economic growth, high
unemployment and balance of payments deficits. By the late 1980s it had overcome
these problems, attained a high level of economic growth and graduated to the World
Bank list of middle income countries. The growth of the economy was closely related
to the growth of exports.
This thesis discusses the development strategies and policies adopted by the
government over the last two decades. In the middle of the 1960s, the government
adopted an import-substitution strategy to diversify the mono-culture sugar economy
by entering manufacturing. This strategy failed to stimulate employment, reduce
balance of payments deficits or to improve overall economic growth. In the early
1970s the government began to encourage exports of manufactures to overcome its
difficulties. Mauritius then successfully developed labour-intensive, export-oriented
manufacturing and tourism.
This study identifies the major macro and microeconomic policies associated
with the rapid growth of manufactures which led to accelerated growth for the
economy as a whole.
The study also examines the external factors that facilitated the growth of
exports. These were mainly the Sugar Protocol of the Lome Convention and the
Multifibre Arrangement (MFA). The Sugar Protocol of the Lome Convention ensured
high and stable export earnings from sugar. By restricting imports from competitors to
its major export markets, the Multifibre Arrangement allowed Mauritius to sell its
clothing exports at higher prices than would otherwise have been the case while
rapidly increasing its clothing export volume.
The economy-wide effects of changes in external factors are analysed in this
study. Conditions within the European Community (EC) and recent international
developments point in the direction of sugar trade liberalization. The economy-wide effects of cuts in the export price and quantity of sugar exports to the EC from
Mauritius are analyzed using a general equilibrium model. The analysis indicates that
the sugar industry would suffer a considerable loss in earnings with sugar trade
liberalization. The other losers from the change would be import-substitution and
non-traded goods industries. Exporting industries other than sugar would gain.
Mauritius could face cuts in clothing export earnings if trade in clothing were
liberalized and the Multifibre Arrangement dismantled. Mauritius would require great
policy flexibility to meet such challenges. The general equilibrium outcome of a fall
in the export price of clothing if the Multifibre Arrangement were liberalized would
also be unfavourable if no compensatory action were taken.
The magnitude of tariff protection and other forms of industry assistance are
estimated. Import-substitution manufacturing industries receive the highest level of
protection followed by agriculture (excluding sugar). The service sector is the most
disadvantaged by the tariff structure. The scope for raising the competitiveness of the
economy by further liberalizing the tariff regime is examined. The impact of tariff
reduction on different sectors and on the overall economy is estimated using the
general equilibrium model. The analysis indicates that tariff reduction would
encourage tourism and discourage import-substituting manufactures. Its effect is
small on export-oriented industries as these industries enjoy duty free imports of
inputs. The net effect is an overall gain to the economy with reduced inflation and
expanded overall output.
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