This paper examines the role of an effective 'State Business Relations' (SBR) in promoting economic performance for the case of Mauritius. Rigorous dynamic time series analysis, a so called VAR framework, is used to address the dynamic and endogeneity issue normally present in growth modelling. The results show that SBRs have a positive and significant effect on output in Mauritius in the long run with an implied elasticity of 0.18. Private capital is the most important factor for growth followed by openness and the quality of labour. These results also apply to the short run. Moreover we suggest it is important to include a dynamic specification in growth modelling. Interestingly SBRs also appear to have an indirect effect on output in the short-run via 'the private capital channel'. As such SBR can also promote further openness of the country.
Discussion Paper Series, Research Programme Consortium for Improving Institutions for Pro-Poor Growth, Manchester, UK, No. 36, 43 pp.