Financial liberalisation in Mauritius and the finance-growth nexus
The purpose of the thesis is to explore the empirical relevance of the theory of financial liberalisation in the Mauritian context. After confronting the conflicting views in the literature, the changes that have taken place in the financial sector in terms of monetary policy and the institutional developments are examined. The study shows that government has played a role in boosting financial intermediation before liberalisation and that it has still a role to play after liberalisation. It also explains the measuresta ken to improve financial stability. The high concentration in both the banking and insurance sectors are also discussed. The thesis finds no evidence of an increase in real interest rate after liberalisation or any consequential improvement in domestic savings as suggested by the liberalisation theories. Further external liberalisation has not led to a drop in real interest rate and increased savings. Some minor episodes of banking and stock market crises have been identified. The research also examines the links between interest spread after liberalisation, fund cost and market share and the results tend to support the proposition that there is unidirectional causality from market share to interest spread. No significant change in share market size, liquidity and activity has been observed after liberalisation and the collective investment schemes have not yet indicated signs of ability to considerably mobilize savings and hence to boost the security market. There is evidence of a slow down of the financial deepening process as the liquidity ratio M2 Y exceeds 65%. Financial deepening is not found to be positively i related to real interest rate. This applies not only to Mauritius but equally to some other countries of the region. Although the evidence does not support the McKinnon and Shaw predictions concerning interest rate and mobilization of savings, yet there has been freer access to credit after liberalisation and the study has shown that private sector credit as a share of GDP is positively related to economic growth and that there is bidirectional causality between them. With respect to corporate financing the study shows that the behaviour of listed firins is consistent with the pecking order theory of finance and that the listed companies are now more sensitive to external financing for the acquisition of physical investment, in relation to their internal growth strategy.