The assessment of international trade and its impacts on economic growth in mauritius

Theoretical Review 5 2. International Trade Theories 6 2. Theoretical Review 9 2. Theory Supporting empirical model used for analysis 9 3. Research Methodology 9 3. Reuvid and Sherlock (2011) observed that it is almost impossible for states to operate in the present day market environment with involving others either through importation or exportation. Countries can directly import products and services they do not have in exchange for what they have. Alternatively, this could be in the form of multinational companies (MNCs) established in foreign countries facilitating the flow of goods and services from their countries of origin to those their businesses are established. Similarly, MNCs can siphon raw materials or finished products back to their home countries because of the unavailability of such products (Reuvid & Sherlock 2011). International trade (IT) constitutes a significant portion of microeconomic measurement quantities such as gross domestic product (GDP) and net domestic product (NDP) for a country.

Inflation (INF) is the measure of the rate at which the price of commodities of the same quantity in a given country increases over time. In other words, INF is the constant rise in prices where a currency unit buys less than what it was previously. The rate of inflation portrayed by a country has a direct impact on the value of the currency of a nation and its foreign exchange rate in relation the currencies of other countries (Madura 2007, p. Consequently, this affects the willingness of people to invest in one nation and not another. States may also choose to import goods from countries with low inflation rates in preference to those with steady inflation rates. The IT history started with the barter trade system that was later replaced by Mercantilism between the 16th century and 17th century (Dorobat, 2014, p.

The 18th century was marked with a significant shift towards liberalism, and it was a period when Adam Smith defined the importance of production specialization. Consequently, this brought the concept of IT both in theory and application. The principle of comparative advantage was first coined David Ricardo, which standards true in the present-day global business environment. The impacts of IT has been widely promoted in literature and applied in the real-life business realms. Based on the Ricardian model, there are welfare gains a nation could gain if it develops a specialty in producing goods in which it demonstrates a comparative advantage (Matsuyama 2000). On the other hand, the Heckscher-Ohlin-Samuelson model is clung to the notion that the welfare gains in a two-country model should be designed in a manner that each country specialises based on its endowment factor (Bergstrand 1990).

The interregional and international product costs vary due to the differences in the production supply factors according to Heckscher-Ohlin theory. Accordingly, commodities that require production are exported in exchange of products and services needed in different proportions. Therefore, indirectly, elements in abundant supply are exported while those in scanty supply are imported (Negishi 2001, p. International trade theories offer different concepts aimed at explaining cross-boarder business activities and why countries should consider it. Trade involves exchanging goods and services between two or more people or entities. This leads to the knowledge of an international trade, which involves the concept of this exchange between business entities in two or more countries. Parties involved in this trade they do so because they believe they will benefit in the long-run.

The concept of international trade seems simple, but the truth is that it involves a great deal of theory. experienced. Elsewhere, the theory has been used to describe the process of personal computer went through throughout its product life cycle. However, the critics of the product lufe cycle theory have come out strongly to refute its applicability in the present-day business environment. Many believe that it has failed to explain the current patterns of trade marked with great extents of innovations. The current world experience a huge growth of global companies that perform research and development in emerging markets where resources such as skilled labour and facilities are cheaper. These theories attempt to link international trade and the competitive advantages players should identify to exploit the market effectively.

The majority of the studies attempting to link IT and economic growth do not combine many variables in their empirical studies to illustrate the collection. For example, Marwah and Tavakoli (2004) explored how FDI flows and imports affect IT, and consequently, growth in the economy of a country. As for Bleaney and Greenaway (2001), the volatility of the exchange rate and its impact on the IT are provided. The authors also captured other elements affecting IT such as trade instability and investment. The present study adopts a linear model in assessing the impact of public and private investment, exchange rate, inflation, and foreign direct investment net inflows on economic growth (GDP) in Mauritius. However, the study focuses on the contribution of international trade to GDP.

Research Methodology 3. Introduction The current study is based on the theory that tries to find a correlation between trade and growth, providing a range of predictions. The theoretical literature explaining trade and growth posts a comparative advantage. The study also intended to examine how trade barriers (such as tax, quotas and bans) and trade promotions (such as subsidies) affect imports and exports. To achieve these objectives, descriptive data was obtained from statistics of Mauritius websites and the World Bank reports. Appendix A shows data summary of the study variables for 30 years (between 1998 to 2017). Data Size The data used in this study was collected between 1998 and 2017 and contained five variables for analysis. These include FDI NI, GDPPC growth, INF, INV, and EXR.

This could be domestic or foreign, or public or private investment reported in Mauritius within the study period. The natural logarithm of exchange rate of the Mauritius current against that of other countries at period t. The natural logarithm of foreign direct investment of net inflows in millions at period t. The natural logarithm of inflation rate in Mauritius at period t. Random variable. Based on Table 2 below, and regression equation above, the coefficients of variables obtained from the output are indicated in the question as follows: …(I) The processing of determining coefficients that could be used for the beta coefficients above started with the determination of unit root test level form. Table 1 below provides a summary of descriptive statistics used throughout the analysis.

Table 2: Descriptive Statistics Variable Obs Mean Std. Dev. Min Max fdini 30 1. inv Adjusted t* -3. ex Adjusted t* -0. fdini Adjusted t* -1. inf Adjusted t* -2. Table 4: Unit root test first difference form Levin-Lin-Chu unit-root test for D. it Adjusted t* -3. D. inv Adjusted t* -5. D. ex Adjusted t* -3. F-statistic, Case 3 [I_0] [I_1] [I_0] [I_1] [I_0] [I_1] [I_0] [I_1] L_1 L_1 L_05 L_05 L_025 L_025 L_01 L_01 k_5 2. accept if F < critical value for I(0) regressors reject if F > critical value for I(1) regressors Critical Values (0. t-statistic, Case 3 4. Long-run ARDL Approach Table 8: results of long-run ARDL testing Sample: 1990 – 2013 Number of obs = 24 R-squared = 0. Adj R-squared = 0. it. inv. exr. Table 9: results of short-run ARDL testing Sample: 1990 - 2013 Number of obs = 24 R-squared = 0.

Adj R-squared = 0. inv D1. ex D1. LD. cons -11. From Table 8, the adjusted R-squared is 0. if all other factors are held constant. The t-value and significance of INF are 4. and 0. respectively. is greater than +2. It was found that a unit increase in IT results in a growth of GDP by. Its t-value is 1. which is less than +2. The significance value of IT is 0. which is higher than 0. With t-statistics for with and significance of 0. results indicate that inflation is statistically significant to GDP. It is known that inflation affects international trade (imports and exports) primarily due to their impact on the exchange rate. Higher inflation leads to high-interest rates, which consequently leads to a weaker currency of a country. A currency of an economy experiencing higher inflation rate will depreciate against a nation with lower inflation.

fostered GDP growth. However, they found that above this value, inflation has a negative correlation with economic growth. Behera and Mishra (2017) found an association between inflation and economic growth. Therefore, in the current study like many other pieces of research, it clear that there exist myriad inconsistencies regarding the relationship between inflation and growth in GDP. The majority of foreign investors are motivated to invest in international markets due to a variety of reasons. The author used a growth model and cross-section analysis for data obtained collected between 18984 and 1998. Zhang (2001) showed that FDI had a positive impact on economic development during the transition of China. Therefore, the results of this study as it pertains to FDI NI are consistent with other published works in literature.

FDI NI contributes 0. to economic development if it is the only aspect of international trade to consider while others are held constant. Literature identifies investment as one of the critical ingredients of economic growth of a country. A study by Maitra (2018) aimed to explore the efficacy of investment in such areas as physical capital and human capital by the public to raise income in Bangladesh between 1980 and 2016. Using a series of tests including the Johansen cointegration test, error correction mechanism, distributed lag (ARDL) model, and Wald test of Granger causality, the author found a correlation between investment and increased life expectancy by raising the living standards of people in Bangladesh. In support, Dutta, Haider, and Das (2017) through empirical analysis found that both FDI and domestic investment based on trade openness have positive impacts on economic growth.

The current study is consistent with many studies is constituent with many studies that support the correlation between investment and growth in DP of a country. The present study replicates similar findings in Mauritius regarding impacts of investment on economic growth. Currency fluctuations are as a result of the floating exchange rate system, which is the norm of many countries in the world. Several technical and fundamental factors influence the exchange rate of a currency compared to other nations. The influencing factors include supply and demand of currencies, the economic performance of a country, inflation outlook, differences in interest rate, and capital flows to name a few. These factors are constantly in the state of perpetual flux, making currency values fluctuate from time to time.

EXR affects trade flows in a negative sense. However, the extent of this effect largely depends on the existence of hedging instruments, level of economic integration with other countries and the structure of production (Auboin & Ruta 2013). Besides, currency misalignment is another issue that affects the EXR, which is thought to short-run effects on GDP growth. The results of the current study show that a unit increase in EXR leads to a growth in GDP by. However, its t-value (1. found that international marketing through exporting and importing positively impacts economic growth as it facilitates the meeting of basic human needs. In another study, Negishi (2001, p. observed that IT positively influences economic growth through exports and imports. The case of Mauritius presents a contradicting case.

The analysis of IT and its impacts on the growth of the economy in Mauritius showed a negative correlation between international trade (IT) with economic growth. However, the inflation rate, foreign direct investment net inflows, and investment were found to have a positive influence on the growth of the country. Based on the study variables, the majority of them showed a positive influence on the growth of the economy, showing an overall benefit of international trade on the GDP growth in Mauritius. The negative impact of IT on GDP in Mauritius could be argued heavy reliance on imports of the government. These findings suggest that the country should focus on investing in human capital development and infrastructure to spur more investment.

Mauritius’ affiliations with both regional and international trade blocs should be aimed at exporting rather than importing goods. pp. Bergstrand, JH 1990, “The Heckscher-Ohlin-Samuelson model, the Linder hypothesis and the determinants of bilateral intra-industry trade,” The Economic Journal, vol. no. pp. Bleaney, M & Greenaway, D 2001, “The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa,” Journal of development Economics, vol. pp. Dornbusch R 2001, “Fewer Monies, Better Monies,” American Economic Review, vol. no. pp. Dorobat, C. pp. Islam, MA 2013, “Impact of inflation on import: An empirical study. ” International Journal of Economics, Finance and Management Sciences, vol. no. pp. pp. Matsuyama, K 2000 “A ricardian model with a continuum of goods under nonhomothetic preferences: Demand complementarities, income distribution, and north-south trade,” Journal Of Political Economy, vol.

no. pp. Miles, W 2006, “To Float or Not to Float? Currency Regimes and Growth,” Journal of Economic Development, vol. Reuvid, J & Sherlock, 2011, International Trade: An Essential Guide to the Principles and Practice of Export, Kogan Page, London. Udoh, E & Egwaikhide, FO 2008, “Exchange rate volatility, INFlation uncertainty and foreign direct investment in Nigeria,” Botswana Journal of Economics, vol. no. pp. Zhang, KH 2001, “How does foreign direct investment affect economic growth in China?” Economics of Transition, vol. gdppc ---------------------------------------- Ho: Panels contain unit roots Number of panels = 1 Ha: Panels are stationary Number of periods = 29 AR parameter: Common Asymptotics: N/T -> 0 Panel means: Included Time trend: Not included ADF regressions: 1 lag LR variance: Bartlett kernel, 9. lags average (chosen by LLC) ------------------------------------------------------------------------------ Statistic p-value ------------------------------------------------------------------------------ Unadjusted t -7.

Adjusted t* -4. xtunitroot llc it, lags(1) Levin-Lin-Chu unit-root test for it ----------------------------------- Ho: Panels contain unit roots Number of panels = 1 Ha: Panels are stationary Number of periods = 30 AR parameter: Common Asymptotics: N/T -> 0 Panel means: Included Time trend: Not included ADF regressions: 1 lag LR variance: Bartlett kernel, 9. lags average (chosen by LLC) ------------------------------------------------------------------------------ Statistic p-value ------------------------------------------------------------------------------ Unadjusted t -1. inv, lags(1) Levin-Lin-Chu unit-root test for D. inv -------------------------------------- Ho: Panels contain unit roots Number of panels = 1 Ha: Panels are stationary Number of periods = 29 AR parameter: Common Asymptotics: N/T -> 0 Panel means: Included Time trend: Not included ADF regressions: 1 lag LR variance: Bartlett kernel, 9. lags average (chosen by LLC) ------------------------------------------------------------------------------ Statistic p-value ------------------------------------------------------------------------------ Unadjusted t -7. Adjusted t* -5.

Levin-Lin-Chu unit-root test for ex ----------------------------------- Ho: Panels contain unit roots Number of panels = 1 Ha: Panels are stationary Number of periods = 26 AR parameter: Common Asymptotics: N/T -> 0 Panel means: Included Time trend: Not included ADF regressions: 1 lag LR variance: Bartlett kernel, 9. xtunitroot llc D. fdini, lags(1) Levin-Lin-Chu unit-root test for D. fdini ---------------------------------------- Ho: Panels contain unit roots Number of panels = 1 Ha: Panels are stationary Number of periods = 29 AR parameter: Common Asymptotics: N/T -> 0 Panel means: Included Time trend: Not included ADF regressions: 1 lag LR variance: Bartlett kernel, 9. lags average (chosen by LLC) ------------------------------------------------------------------------------ Statistic p-value ------------------------------------------------------------------------------ Unadjusted t -6. Adjusted t* -4. vecrank fdini gdppc inf it inv ex, trend(constant) max levela Johansen tests for cointegration Trend: constant Number of obs = 24 Sample: 1990 - 2013 Lags = 2 ------------------------------------------------------------------------------- maximum trace 5% critical 1% critical rank parms LL eigenvalue statistic value value 0 42 -351.

maximum max 5% critical 1% critical rank parms LL eigenvalue statistic value value 0 42 -351. unrestricted cointergrated rank test (Trace). vecrank fdini gdppc inf it inv ex, trend(constant) levela Johansen tests for cointegration Trend: constant Number of obs = 24 Sample: 1990 - 2013 Lags = 2 ------------------------------------------------------------------------------- maximum trace 5% critical 1% critical rank parms LL eigenvalue statistic value value 0 42 -351. unrestricted cointergrated rank test (Maximum eigen values). Adj R-squared = 0. Log likelihood = -25. Root MSE = 1. D. gdppc | Coef. Adj R-squared = 0. Log likelihood = -25. Root MSE = 1. D. gdppc | Coef. cons | -11. complete results of long-run and hort-run ARDL testing. ardl gdppc fdini inf it inv ex, lags(2 1 2 0 1 2)ec btest ARDL(2,1,2,0,1,2) regression Sample: 1990 - 2013 Number of obs = 24 R-squared = 0. Adj R-squared = 0. Log likelihood = -25. inv |. ex |. SR | gdppc | LD. fdini | D1. inf | D1.

inf | 30 6. it | 30 120. inv | 30 4. ex | 26 24.