Asymmetric Impact of Financial Development on Economic Growth in Mauritius

Abstract

Abstract This paper examines the asymmetric impact of financial development on economic growth in Mauritius during the period 1980–2021. The analyses were carried out using a nonlinear autoregressive distributed lag (NARDL) model in conjunction with additional complementary tests, including the NARDL bounds F-test for cointegration, the Brock-Dechert-Scheinkman (BDS) nonlinearity test, and the Wald test for asymmetries. The findings of the bounds F-test provide support for a nonlinear cointegration, whereas the BDS test shows the presence of nonlinearity in the data for all the variables. The Wald test results revealed an asymmetric relationship between financial development and economic growth in Mauritius, both in the short and long run. The NARDL findings show that, on average, positive changes in financial development lead to economic growth in the long and short run. Therefore, the paper encourages the government of Mauritius to continue pursuing policies aimed at the expansion of its financial sector since it has a significant positive impact on its economic growth.