An investigation into the innovation-economic growth nexus in Mauritius

Abstract

This paper extends the existing strand of research, delving into the link between innovation and economic growth for the small island developing state of Mauritius. The innovation-growth relationship is analyzed within a multivariate endogenous growth model, spanning the period 1970 to 2019 and to account for issues of dynamism, endogeneity and omitted variables bias, a vector error correction model is employed. Our results show that, in the long-run, the economic growth elasticity of research and development (R&D) expenditure is 0.02 and a bi-directional causality between R&D expenditure and economic growth is confirmed. Although this research could not confirm a short-run elasticity from R&D expenditure to economic growth, reverse causality from growth in GDP towards growth in R&D expenditure is validated. The policy implications of our findings are multi-fold. Firstly, R&D expenditure should be increased, but increasing expenditure per se should not be a sine quanone to improve the contribution of innovation to economic growth. R&D funders should ensure that proportionately more economic growth occurs with the protracted increased investment through enhanced innovation capability.