Growth Miracle and Slowdown in Mauritius Compared with Bangladesh: An Example of the Adding-up Problem among Developing Countries

Abstract

Sustaining economic growth is an important issue for developing countries; some countries show growth spurts and collapse in a short time, and many are trapped by the so-called middle-income trap. Mauritius also boasted rapid growth during the 1980s and 1990s, the period marked as an African version of the East Asian miracle economy. After 2000, however, the Mauritian economy faced a significant growth slowdown. The earlier literature attributed its early success more to the ‘good’ institutions.

Discarding the institution supremacy view, this article argues that export performance to generate hard currency is the most limiting factor for developing countries’ long-term growth. The recent export slowdown due to the loss of price competitiveness and the advent of new rivals indicates the limitation of the export growth based on the low-cost and low-value-added industries. This article will consider the case of Mauritius in combination with Bangladesh to reveal the nature of the so-called adding-up problem. We argue that this adding-up problem is one source of the persistence of middle-income trap because many developing countries are stuck in the trap by competing to beat lower wage rates in similar products. It is thus proven that the upgrade of pre-existing industries and the introduction of new industries are necessary to sustain economic growth. Thus, the article argues, export growth matters more than institutions and simple openness for a developing country.