The contribution of the EPZ to the economic growth of Mauritius
Date
2015
Authors
Ramasamy, Jaysen Kovalen
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Abstract
The story of the Export Processing Zone (EPZ) in Mauritius from its creation in 1970
through to its take-off and success is seen as an exception on the African continent. In the
1970s, very few African nations were able to create an EPZ and those that did were not as
successful as Mauritius. We start off by investigating whether Mauritius had the unique
characteristics of being blessed with the necessary political economy factors that
provided an environment conducive to the creation of the EPZ. Factors such as inclusive
institutions prior to and after independence, ideas, luck, leadership, dual-track economic
strategy, ethnic diversity/diaspora and protection of vested interests contributed to the
unique framework within which the Mauritius EPZ was created. Using an integrated
approach where all factors have their own weight, we see that the protection of vested
interests played an important role in determining the strategy of Mauritius to move
towards the EPZ.
The take-off and sustainability of the Mauritius EPZ throughout the 1980s are explained
through the New Trade Theories, in particular the Krugman and Venables model, which
explains success in terms of transport costs and low wages. We developed the hypothesis
that it was a combination of both trade preferences and low wages that contributed to the
exceptional EPZ growth in Mauritius.
Using cross-country data to examine the association between the EPZ and economic
performance, it seems that although those countries adopting an EPZ tend to be globally
more successful, a more in-depth analysis shows that this hypothesis cannot be proven
statistically and adopting an EPZ does not necessarily lead to the general effect of making
a country successful. This should, however, not stop us from thinking about possible
scenarios regarding the effect of EPZ on success. The first scenario, which was
confirmed by the probit results, is that those countries that were successful and had an
EPZ would have experienced some success anyway with or without an EPZ. The second
is the possibility that EPZs were adopted by countries that were already set up for
success, but EPZs nevertheless contributed in some way to the scale of success. The
question remains as to whether Mauritius would have been as successful as it has been if
it had not adopted the EPZ.
Finally in the wake of liberalisation and the removal of trade preferences, we use
difference-in-difference estimation to show that the Mauritius EPZ did not actually
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experience the failure that the prophets of doom had predicted; on the contrary, Mauritius
was able to cope effectively with the removal of preferences. Actually, the removal of
preferences did have an impact but the negative effect on the performance indicators was
less than expected.
Description
Thesis (Ph.D.)--University of the Witwatersrand, Faculty of Commerce, Law & Management, School of Economic and Business Sciences, 201