## 23. International Comparison of Educational Attainment

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### I. Introduction and overall findings
- Mauritius achieved average real GDP growth of 5.3 percent between 1969 and 2013 versus 3.8 percent for Sub-Saharan Africa (Figure 1).
- Per-capita growth averaged 4.4 percent versus 1.3 percent for Sub-Saharan Africa.
- Per-capita income in 2013 was $9,136 dollars at current exchange rates or $16,082 at purchasing power parity.
- Per-capita income in 2013 is about 6 times larger than the average of Sub-Saharan Africa and at a comparable level with Mexico and Turkey.
- Authorities’ 2012 vision: GDP of one trillion rupees and income per capita of US$20,000 by the 2020s, which would require real growth of over 6 percent per year.
- Main paper finding: long-run growth might be around 4 percent; proactive policies could raise growth to perhaps 5 percent (translating into 5 percent per-capita growth given essentially zero population growth).

### II. Analytical framework and data
- Production function used: Cobb-Douglas Y_t = A_t K_t^α L_t^(1-α).
- Growth decomposition: dY/Y = dA/A + α dK/K + (1-α) dL/L.
- Human capital augmentation: L*_t = L_t e^{r s_t} with r = 10.7 percent (return to each year of schooling for middle-income countries).
- Capital stock estimation:
  - Perpetual inventory K_t = (1-δ) K_{t-1} + I_t.
  - Range of depreciation rates used for sensitivity: 5, 7, and 10 percent.
  - Baseline capital share α used: 35 percent; sensitivity range α = 0.25, 0.35, 0.5.
- Employment and labor data: CSO employment series from 1972 onward; reconstruction for 1960–1971 using population aged 15–59 growth and assuming 1972 participation/employment rates.

### III. Historical decomposition and stylized facts
- Two periods of strong growth:
  - 1970s: average growth 6 percent; labor rise accounted for 2 percentage points (or 3.5 percentage points if labor adjusted for education).
  - 1990s: average growth 5.2 percent, led by capital stock expansion.
- Long-run transitions:
  - Labor predominated until the 1980s (population boom, female labor entry).
  - From the 1990s capital-driven growth dominated; TFP gained importance over time.
- Key historical figures:
  - Mortality rate declined by 30 percent in one year in the 1940s.
  - Population growth peaked at 4 percent in the mid 1950s.
  - Fertility rates fell by 60 percent between 1962 and 1973.
  - Female participation rose by almost 60 percent between 1983 and 1999.
  - Unemployment fell to about 3 percent by the early 1990s and increased from about 3 to over 8 percent in 2013.
  - Private investment rose from 11.3 percent of GDP in 1982 to 20 percent in 1991.
  - Capital stock growth peaked at almost 8 percent in the late 1990s; declined to about 4½ percent on average at present.
  - TFP has recently averaged 1 percent in the model with human capital, compared to about ¼ percent during the 1960s–1980s.

### IV. Education, human capital, and labor-quality measurement
- Average years of schooling (CSO): increased from 9.7 years in 1990 to 10.8 years in 2009.
- At end of period, 35 percent of the labor force only has primary education as highest attainment.
- Extended series back to 1960 used Lutz et al. and Cohen and Soto measures for stability.
- Growth in average years of education:
  - 1960s and 1970s: grew at 2 percent or more.
  - Later periods: growth declined to about 1 percent per year.
- Labor force educational comparisons:
  - Share with only primary education decreased by 20 percent between 1990 and 2010, but remains 3.5 times higher than in the Asian Tigers.
  - Tertiary attainment: 10 percent in Mauritius versus 30 percent in the Asian Tigers.
- Education system outcomes:
  - Around a third of students consistently fail the Certificate of Primary Education (CPE).
  - CSO Poverty Analysis for 2006/07: 65 percent of heads of poor households and 60 percent of poor household members (aged 20 and over) haven’t passed the CPE; national averages 39 percent and 34 percent respectively.
  - Tertiary enrollment rose from 3 percent to 43 percent between 1990 and 2009.
- Human-capital-augmented labor growth projection:
  - Projected to decline from about 2 percent per year to less than ½ percent per year by 2033, with a band of almost +/- 1 percent across scenarios.

### V. Capital, investment, and financing assumptions
- Baseline investment ratio assumed to rise from 21 percent in 2013 to 25 percent by end-2033, yielding average capital growth of 3.7 percent.
- Historical maximum investment rate: 30 percent in the 1990s.
- Domestic savings: currently about 15 percent of GDP; historical levels around 25 percent.
- FDI role: FDI share in domestic investment rose to 20 percent by 2010 (about one-fifth of similar ratios for Singapore and Hong Kong).
- Financing constraints:
  - Low fiscal space due to need to reduce public debt under the Debt Law.
  - Recommendation of medium-term fiscal adjustment and pension reform to increase savings.
- Business environment:
  - World Bank Ease of Doing Business: Mauritius ranks 9th in Africa and 53rd in the world on the access to credit subcategory in 2013.

### VI. Productivity (TFP) assumptions and international context
- Baseline TFP growth assumed at its 40-year average.
- Scenario adjustments:
  - Optimistic TFP path: 75 basis points higher at end of projection.
  - Pessimistic TFP path: 75 basis points lower at end of projection.
  - Resulting TFP growth in 2033: 2 percent in optimistic scenario; about zero percent in pessimistic scenario.
- International comparisons:
  - Mauritius’ TFP experience comparable to Singapore and Hong Kong.
  - Taiwan and Korea achieved long-run TFP growth of almost 3 percentage points in per capita terms (1970–2009).
- Productivity-enhancing reforms recommended:
  - Upgrade/restructure public utilities and public enterprises.
  - Investments to reduce road congestion.
  - Growth-friendly tax reforms (greener taxes on energy and congestion; broaden VAT; reduce civil servant tax exemptions; rely more on real estate taxes).
  - Better-targeted social benefits and improved business environment (credit, contracts, property, firm entry/exit).

### VII. Projection results, sensitivity, and scenario ranges (2014–33)
- Human-capital-augmented model (AHCM) baseline:
  - Long-run average growth estimated around 3 percent.
  - Parameter-sensitive estimates:
    - High estimate: 3.4 percent (5 percent depreciation and 50 percent capital share).
    - Low estimate: 2.7 percent (15 percent depreciation and 25 percent capital share).
- Standard Solow model baseline:
  - Baseline growth rate: 4 percent with variation from 3.6 to 4.1 percent depending on capital share and depreciation.
- Contributions (example case α = 0.35, δ = 7%; AHCM):
  - Capital contribution: about 1.7 percentage points.
  - TFP contribution: about 1.5 percentage points.
  - Labor contribution: slightly less than 1 percentage point (half from human capital, half from labor force increases).
- Scenario ranges by 2033:
  - AHCM: growth rates range from 5 percent (optimistic) to ½ percent (pessimistic).
  - Under central assumptions the highest average growth observed in some parameter combinations was 4.6 percent.
  - Likelihood of sustaining average growth of 6 percent is small.
- Frequency distribution (central case α = 0.35, δ = 7 percent):
  - 81 average growth paths for AHCM; 27 for standard model.
  - AHCM median average growth = 3; mean = 3; mode = 3.
- Baseline implied per-capita growth rate discussed: 3.9 percent in the AHCM (case α = 0.35, δ = 7% cited elsewhere).

### VIII. Scenarios for achieving higher growth and required adjustments
- To raise medium-term growth to 6 percent would require:
  - Investment to GDP ratio to rise to about 40 percent (compared to projection average of 23 percent under baseline); or
  - Labor market openness to accept about 25 thousand migrant workers per year; or
  - A combination: increase investment ratio by about 10 percentage points compared to projection average and integrate about 12 thousand migrant workers per year.
- Complementarities:
  - Increased FDI and/or foreign skilled labor likely raise TFP via technology and skills transfers, reducing required investment/migration adjustments.

### IX. Labor market issues and reform priorities
- Labor market facts:
  - Share of foreign workers in labor force rose from 0.2 percent in 1990 to 4 percent in 2009.
  - Female unemployment rose from 2 percent in 1990 to over 10 percent by 2009; total unemployment over 8 percent in 2013.
  - Male participation currently 77 percent; female participation currently 42 percent.
  - 2013 participation rate: 60.6 percent; 2013 unemployment rate: 8.2 percent.
- Baseline labor market improvements by 2030 assumed:
  - Participation rate rises to 63.6 percent; unemployment falls to 6 percent.
- Scenario labor assumptions:
  - Optimistic: UN high-variant population forecast (-0.19 percent), participation reaches 65 percent by 2033, unemployment structural 4.5 percent.
  - Pessimistic: UN low-variant population forecast (-0.49 percent), no changes in participation and unemployment.
- Institutional constraints and reforms suggested:
  - Reform Remuneration Orders and rigid pay determination; move from protecting specific jobs toward protecting workers.
  - Encourage firm-level collective bargaining to allow firm- and sector-specific adjustments.
  - Retraining programs, SME environment improvements, and measures to make EPZ jobs more attractive to Mauritians.

### X. Policy priorities summarized
- Main policy priorities identified:
  - (i) improving investment and savings rates;
  - (ii) labor market reforms;
  - (iii) investment in education and education reform;
  - (iv) further reforms to reduce bottlenecks and increase productivity.
- Specific measures highlighted:
  - Raise investment ratio via accelerated project implementation, encourage FDI and domestic savings, medium-term fiscal adjustment, pension reform.
  - Education: increase secondary and tertiary enrollment; reduce CPE failure concentration among poor households; reform to deliver relevant skills.
  - Productivity: public utility and public enterprise reforms; road and transport investments; growth-friendly tax and social benefit design; business environment improvements (credit, contracts, property, firm exit/entry).
  - Consider migration, fertility, and female participation policies to influence long-run labor supply.

*Source: _wp14134 - References (IMF Working Paper chapter provided).*

### References .............................................................................................................

### _wp14134 - References

### Tables
- 1.Decomposing Historical Growth, 1951–2013 .............................................................................................15
- 2.Growth Sensitivity Analysis, 1961–2013 ....................................................................18
- 3.Baseline Growth Scenario, 2012–33............................................................................25
- 4.Optimistic Growth Scenario, 2012–33 ........................................................................27
- 5.Pessimistic Growth Scenario, 2012–33 .......................................................................28
- 6.Summary Business Environment Statistics, 2013 .......................................................32

### Figures
- 1. GDP Developments, 1950–2013 ...................................................................................5
- 2. Implied Depreciation Rate, 1979–2013 .......................................................................10
- 3. Capital Growth, 1950–2013 .........................................................................................10
- 4. Compensation of Employees, 1975-2011 ....................................................................12
- 5. Education of Labor Force, 1990–2010 ........................................................................13
- 6. Average Years of Education, 1960–2010 ....................................................................13
- 7. Average Growth in Education, 1975-2011 ..................................................................14
- 8. Growth Decomposition, 1951–2013 ............................................................................16
- 9. Labor Market Developments, 1960–2013 ...................................................................16
- 10. Growth Decomposition by Expenditure, 1975–2013 ..................................................18
- 11. Capital Growth Projections, 1975–2033 ......................................................................19
- 12. Comparison with Asian Tigers and Sub-Saharan Africa, 1975–2011 .........................20
- 13. Labor Market Comparison, 1975–2013 .......................................................................21
- 14. Educational Attainment Projections, 2000–2050 ........................................................22
- 15. Labor Growth Projections, 1975–2033 ........................................................................23
- 16. Productivity Projections, 1975–2033 ...........................................................................23
- 17. International Comparison of Educational Attainment .................................................24
- 18. Growth Decomposition (Baseline Scenario), 2012–33 ...............................................26
- 19. Sensitivity of Growth Projections, 2000–33 ................................................................26
- 20. Frequency Distribution of Average Growth Rates ......................................................27
- 21. Migration and Investment Needed to Raise Growth to 6 Percent ...............................29
- 22. Long-Term Working Age Population Projections, 1950–2100 ...................................33

*Source: _wp14134 - References, PDF chapter/section.*

### 23. International Comparison of Educational Attainment .................................................34

### 23. International Comparison of Educational Attainment

### I. INTRODUCTION
- Mauritius started independence in 1968 with typical disadvantages of a low-income monocrop exporter: fully tropical climate, terms-of-trade and output shocks, high population growth, and ethnic tensions.
- James Meade (1961) predicted: “In the author’s opinion, Mauritius faces ultimate catastrophe.”
- Despite initial disadvantages, Mauritius became an upper middle-income diversified economy.
  - Average real GDP growth of 5.3 percent between 1969 and 2013 versus 3.8 percent for Sub-Saharan Africa (Figure 1).
  - Per-capita growth averaged 4.4 percent versus 1.3 percent for Sub-Saharan Africa.
  - Per-capita income in 2013 was $9,136 dollars at current exchange rates or $16,082 at purchasing power parity.
  - Per-capita income in 2013 is about 6 times larger than the average of Sub-Saharan Africa and at a comparable level with Mexico and Turkey.
- Future growth potential is more uncertain; long-term trend could be declining partly due to zero population growth and expiry of trade preferences (Multi-Fiber Agreement expired in 2004; EU Sugar Protocol ended in 2009).
  - Sugar price fell by 36 percent between 2006 and 2010.
- Authorities’ 2012 vision: GDP of one trillion rupees and income per capita of US$20,000 by the 2020s, which would require real growth of over 6 percent per year.
- Paper objective: use standard growth accounting framework to assess drivers of past growth, identify sources of future growth, and determine potential growth ranges through 2030 under various policies.
- Main finding: long-run growth might be around 4 percent; proactive policies could raise growth to perhaps 5 percent (translating into 5 percent per-capita growth given essentially zero population growth).
- Policy suggestions include:
  - improving investment and savings rates;
  - labor market reforms;
  - investment in education and education reform;
  - further reforms to reduce bottlenecks and increase productivity.

### II. MAURITIUS GROWTH MIRACLE
- Determinants of economic performance: initial conditions, remedial policies, and framing institutions.
- Initial unfavorable inheritance: population explosion, little technical knowledge outside sugar factories, scarcity of capital and raw materials, limited domestic market, remoteness, ethnic fragmentation.
- Meade’s proposed remedies: population control and emigration; agricultural diversification and rapid industrial change; subsidies with wage restraint, welfare for unemployed, overseas welfare assistance.
- Successful policy mix and contributing factors:
  - Heterodox trade opening: restrictive import policies supplemented by creation of export-processing zones (EPZ) with duty free access for imported inputs, tax incentives, and segmented labor market.
  - Preferential access in textiles and sugar resulted in rents of, respectively, 7 and 4.5 percent of GDP per annum in the 1980s and 1990s, sustaining high investment levels.
  - Domestic rather than foreign savings financed domestic investment in those years.
  - Heavy investment in human capital funded publicly and privately.
  - Double Taxation Avoidance Treaty with India in 1983 facilitated development of offshore financial sector and made Mauritius the largest source of FDI inflows into India.
  - Importation of ideas via inward FDI (Romer, 1992) and EPZs jump-started industrialization (role of Chinese businessmen).
  - Prudent, proactive fiscal policy and flexible exchange rate aided adaptability to external shocks.
  - Free education and promotion of study abroad.
- Institutional explanations (Subramanian, Frankel, Stiglitz):
  - Separation between economic and political power, parliamentary system to accommodate diversity, decision not to have a standing army.
  - Not expropriating or overtaxing Franco-Mauritians’ wealth facilitated transfer of political power and secure property rights.
  - Political stability, rule of law, and strong domestic institutions (Mauritius topped World Bank Doing Business rankings in Africa).
  - Diversity worked positively via business and social networks (e.g., Chinese-Mauritians influenced EPZ creation).
- “Deepest determinants” (Frankel): few British settlers, more time taken to prepare for independence, and immigrant-isle dynamics fostered common stake and immigrant initiative.
- Paper’s analytical approach: initial conditions, policies, and institutions are treated as determinants of factor accumulation rates and efficiency (TFP); growth accounting used to draw implications for future growth and policy.

### III. THE GROWTH ACCOUNTING FRAMEWORK
- Production function: Cobb-Douglas form used with constant returns to scale:
  - Y_t = A_t K_t^α L_t^(1-α)
  - Y_t = domestic output in period t; K_t = physical capital stock; L_t = employed labor; A_t = total factor productivity (TFP); α = partial elasticity of output w.r.t. capital.
- Growth decomposition:
  - dY/Y = dA/A + α dK/K + (1-α) dL/L
- TFP computed as a residual given data for output, capital, and labor.
- Augmented specification accounts for human capital H to calculate effective labor L*:
  - L*_t = L_t e^{r s_t}
  - s = average years of schooling of labor force; r = return to each year of schooling, estimated to be 10.7 percent for middle-income countries (Psacharopoulos and Patrinos, 2004).
- Augmented model presented and preferred because it allows labor quality differences; relevant for Mauritius with rising per-capita income and improved education/training.

### III.A Capital stock
- Capital stock estimated using perpetual inventory model with geometric depreciation:
  - K_t = (1-δ) K_{t-1} + I_t
  - δ = depreciation rate in percent; I_t = real gross fixed capital formation.
- Historical decomposition uses annual data 1950–2011.
  - Investment data from Central Statistical Organization (CSO) for 1972–2011 and from Nehru and Dhareshwar (1993) for 1950–1971.
- Initial capital stock estimated via Harberger approach assuming constant capital-output ratio over a midpoint period; three-year averages of output growth and investment used to apply accumulation equation backwards to 1950.
- Choice of depreciation rate δ is critical:
  - Annual depreciation rate estimated from capital accumulation with CSO data is relatively stable between 7 and 8 percent over the last 4 decades (Figure 2).
  - CSO used straight-line depreciation based on mean asset-life assumptions.
  - Mauritius Commercial Bank study estimates depreciation at 5 percent over 1990–2012.
  - Bu (2006) finds implied depreciation rates for aggregate physical stock in the range of 10-20 percent for several countries.
- Paper uses a range of depreciation rates: 5, 7, and 10 percent to test sensitivity.
- Resulting capital stock growth rates similar to CSO (7-8 percent) and Nehru and Dhareshwar (4 percent) (Figure 3).
- Using investment rate (I/Y) as proxy for capital growth (alternative approach) may overstate capital’s role because Mauritius investment rates have been between 20–30 percent, much higher than the -5 to 15 percent growth range estimated for constructed capital stock.

### III.B Labor force
- Employment data used from 1972 onwards from CSO; employment measure reflects population growth and variations in participation and employment rates.
- Data for 1960–1971 reconstructed using growth rates of population aged 15-59 and total population for 1950–1959 from World Development Indicators (WDI).
- Reconstruction assumes participation and employment rates unchanged at 1972 levels during 1950–1971.

### III.C Shares of capital and labor in output
- Under competitive markets and constant returns to scale, exponents on factors represent their income shares.
- CSO national accounts data show a persistent decline in employee compensation share in value added:
  - Peak of 55 percent in 1977 to 38 percent in 2011 (Figure 4).
  - Implied capital share increased from 45 percent to 62 percent over the same period.
- Explanations for labor-share decline:
  - Structural changes: diversification from agriculture to textiles (more capital-intensive) and expansion of capital stock.
  - Attempts to limit real wage increases relative to productivity to preserve competitiveness.
  - Broader pattern in developing countries of lower labor shares and declining shares over time (Diwan, 2001; Harrison, 2002).
  - Trade and capital account openness tend to reduce labor share (Harrison).
  - Potential statistical artifact (Gollin, 2002): labor income of self-employed often treated as capital income in national accounts.
    - Mauritian labor force surveys show self-employed share increased from 13 percent in 1990 to 16 percent in 2000 and to 20 percent (sentence truncated in source).

*Source: IMF Working Paper (chapter content provided).*

### 2010. By comparison, the self-employment

### _wp14134 - 2010. By comparison, the self-employment

### Labor share and self-employment adjustments
- The self-employment rate in the United States in 2009 stood at 11 percent.
- According to Gollin’s adjustments, the labor share estimates in 1990 for Mauritius rise from 39 percent to:
  - (i) 49 percent if one imputes self-employed compensation from the overall labor compensation;
  - (ii) 66.8 percent if one reallocates self-employed income into the labor and capital income according to the distribution in the rest of the economy; or
  - (iii) 76.7 percent if one treats all self-employed income as labor income.
- The self-employment adjustment argument suggests that the use of constant elasticities could be justifiable.

### Capital share choices and sensitivity tests
- The baseline capital share used: 35 percent (standard).
- Sensitivity tests use a range of the capital share α from 0.25 to 0.35 to 0.5.
- Key sensitivity findings:
  - The results are not very sensitive to the level of the capital share.
  - Using a higher capital share reduces the historical TFP estimates.
  - For the projection horizon, using a higher capital share increases the contribution of capital, but when combined with lower TFP, it does not materially change the baseline growth projections.

### Human capital specification and measurement
- Human capital inclusion: augmented the standard production function with human capital to reflect Mauritius’ focus on creating a knowledge-based service economy.
- Chosen functional form rationale: treat human capital as a measure of educational attainment that improves workforce quality; overall share of output going to labor input remains (1-α), but workers with more education receive a larger sub-share of this (1-α).
- Human capital evolves according to the expression shown in the source: ܪ ௧ ݁ൌ ௥௦ ೟  (source text preserves original notation).
- This measure quantifies accumulated educational investment in the current labor force and assumes that the human capital embodied in the workers is proportional to the average years of schooling (ݏ ௧) they have attained, taking account of the return (r) to each year of schooling.
- Years of schooling are measured according to: ݏ ௧ ൌ∑ ௜ ݀ ௜ ܮ ௧,௜, where L t,i is the proportion of labor force participants with the i th level of schooling at time t and d i is the duration in years of the i th level of schooling, which includes six years of primary, seven years of secondary, and three years of tertiary education.
- Note in source: An alternative specification could be ܪ ௧ ൌሺ1൅ݎሻ ௦ ೟ if we don’t assume continuous compounding.

### Education trends and data sources
- CSO data show average educational attainment of the labor force increased from 9.7 years in 1990 to 10.8 years in 2009.
- At end of period, some 35 percent of the labor force only has primary education as their highest educational attainment level.
- Other measures of educational attainment referenced: ILO; Cohen and Soto, 2001; Barro and Lee, 2001; Lutz et al., 2007 — these show substantial improvement over time, with some differences in levels due to methodological reasons.
- Extended data back to 1960 using Lutz et al. and Cohen and Soto because these measures show the least variable growth rates.
- Growth rates by period:
  - In the 1960s and 1970s, average years of education grew at 2 percent or more.
  - Growth has declined to about 1 percent per year in later periods.
- Policy implication noted: An acceleration in the growth rate of average years of education would require more people to finish secondary and tertiary education.

### Historical decomposition of growth (summary)
- Mauritius experienced two periods of strong above average growth:
  - 1970s: growth was 6 percent on average, driven by the rise in the labor force, which accounted for 2 percentage points, or 3.5 percentage points if labor is adjusted for education levels.
  - 1990s: growth was 5.2 percent, led by the capital stock expansion (the labor force contributed [text truncated in source]).

*Source: _wp14134 - 2010. By comparison, the self-employment*

### 1.1 percentage points). These episodes compare favorably against the already high historical

### _wp14134 - 1.1 percentage points). These episodes compare favorably against the already high historical

### Historical growth experience and decomposition
- Real growth and drivers (1951–2013 and decade summaries):
  - Growth accounting indicates labor predominated until the 1980s, driven by the population boom and female labor force entry.
  - Starting in the 1990s, capital-driven growth took over as labor’s role declined and capital accumulation rose.
  - Total factor productivity (TFP) gained importance over time and has become permanently higher than before.
- Key historical figures:
  - Mortality rate declined by 30 percent in one year in the 1940s.
  - Population growth reached a peak of 4 percent in the mid 1950s.
  - Fertility rates fell by 60 percent between 1962 and 1973.
  - Female participation rates rose by almost 60 percent between 1983 and 1999.
  - Unemployment fell to about 3 percent by the early 1990s and increased from about 3 to over 8 percent in 2013.
  - Private investment almost doubled from 11.3 percent of GDP in 1982 to 20 percent in 1991.
  - Growth in the capital stock peaked at almost 8 percent in the late 1990s and declined to about 4½ percent on average at present.
  - TFP has recently averaged 1 percent in the model with human capital, compared to an average of about a ¼ percent during the 1960s to 1980s.

### Labor, demographics, and human capital
- Demographic and labor assumptions and observations:
  - UN median-variant forecast: average growth of population aged 15–59 during 2014–33 is -0.34 percent per year.
  - 2013 participation rate: 60.6 percent; 2013 unemployment rate: 8.2 percent.
  - Baseline labor market improvement assumptions by 2030: participation rate rises to 63.6 percent and unemployment falls to 6 percent.
  - Male participation rate currently 77 percent; female participation currently 42 percent.
- Scenario assumptions for labor inputs:
  - Optimistic scenario: UN high-variant population forecast (-0.19 percent), participation reaches 65 percent by 2033 (today’s Singapore), unemployment reaches structural 4.5 percent.
  - Pessimistic scenario: UN low-variant population forecast (-0.49 percent), no changes in participation and unemployment.
- Human capital projections:
  - Baseline uses Samir et al. (2010) global education trend scenario.
  - Optimistic uses the fast-track scenario (achievement of education milestones).
  - Pessimistic uses the constant enrollment ratio projection (status quo extended).
  - Human-capital-augmented labor growth projected to decline from about 2 percent per year to less than ½ percent per year by 2033, with a band of almost +/- 1 percent across scenarios.

### Capital, investment, and financing
- Baseline capital and investment assumptions:
  - Investment ratio assumed to rise gradually from 21 percent in 2013 to 25 percent by end-2033.
  - This results in an average capital growth of 3.7 percent.
  - Historical maximum investment rate: 30 percent in the 1990s.
- Financing and structural notes:
  - During the growth boom, domestic reinvestment of sugar and textile profits financed investment; in the 2000s Mauritius relied increasingly on FDI inflows.
  - International comparisons: some developing countries peaked around 35–40 percent investment rates; developed countries invest approximately 20 percent of GDP each year.

### Productivity (TFP) assumptions and comparisons
- Baseline and scenario assumptions:
  - Baseline TFP growth assumed at its 40-year average (varies with factor share and human capital modeling).
  - Optimistic TFP path: 75 basis points higher at the end of the projection period.
  - Pessimistic TFP path: 75 basis points lower at the end of the projection period.
  - Under these assumptions, TFP growth in 2033 would be 2 percent in the optimistic scenario and about zero percent in the pessimistic scenario.
- International context:
  - Mauritius’ TFP experience is in line with Singapore and Hong Kong; Taiwan and Korea achieved long-run TFP growth of almost 3 percentage points in per capita terms (1970–2009).

### Baseline projection, drivers of future growth, and sensitivity
- Baseline growth projections (2014–33):
  - In the human capital augmented growth model, long-run average growth rate is estimated at around 3 percent.
  - Parameter-sensitive estimates:
    - High estimate: 3.4 percent (5 percent depreciation and 50 percent capital share).
    - Low estimate: 2.7 percent (15 percent depreciation and 25 percent capital share).
  - In the standard Solow model, baseline growth rate is 4 percent with variation from 3.6 to 4.1 percent depending on capital share and depreciation.
- Contribution of inputs in baseline:
  - Capital accumulation and TFP improvements are the main drivers; both account for about 1½ percentage points per year each by the end of the projection period.
  - Labor contribution (including human capital) declines from about 1 percent per year in the mid-2010s to about ¼ percent by the end of the projection period.
- Sensitivity analysis and scenario ranges:
  - Using optimistic and pessimistic combinations of capital, labor, and TFP assumptions:
    - In the human capital augmented growth model, growth rates in 2033 range from 5 percent in the optimistic case to ½ percent in the pessimistic case.
    - The likelihood of achieving an average growth rate of 6 percent is small.
  - Frequency distribution across all combinations (central case α = 0.35, δ = 7 percent):
    - Total of 81 average growth paths for the human capital augmented model; 27 for the standard growth accounting.
    - Median average growth for the human capital augmented model is 3 percent (mean also 3 percent); mode at 3 percent.
  - Growth could approach 5 percent if the optimistic scenario materializes; under central assumptions the highest average growth rate observed was 4.6 percent in some parameter combinations.

### Policy implications and objectives highlighted in the text
- The projection exercise is intended to:
  - Explore implications of a range of capital, labor, and productivity assumptions on long-term growth trajectories.
  - Explore policy options to improve future outcomes (text does not list specific policy prescriptions in the supplied content).
- Emphasis for sustaining higher growth:
  - Greater reliance on improvements in TFP will be required to sustain higher growth, especially during the transition to a higher value-added economy.
  - Raising the investment ratio toward historical peaks or international comparators could materially affect capital accumulation and growth outcomes.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14134.pdf*

### 3.9 percent in the AHCM. Roughly speaking (in the case of α = 0.35, δ = 7%), the largest

### 3.9 percent in the AHCM. Roughly speaking (in the case of α = 0.35, δ = 7%), the largest

### Growth contributions and scenarios
- Baseline implied per-capita growth rate discussed: 3.9 percent in the AHCM.
- With α = 0.35 and δ = 7%:
  - Contribution to growth from capital: about 1.7 percentage points.
  - Contribution from total factor productivity (TFP): about 1.5 percentage points.
  - Contribution from labor: slightly less than 1 percentage points, of which half is expected to come from human capital accumulation and half from labor force increases.
- Pessimistic scenario:
  - Average growth might be about 2 percent.
  - Most growth still from capital accumulation and TFP; little from labor.
  - Under pessimistic scenario (α = 0.35, δ = 7%), per-capita income in 2033 would be lower than optimistic by some 64 percent.
  - Mauritius would reach high-income status (US$12,616 or more in World Bank definition) in:
    - Year 2028 under the optimistic scenario.
    - Year 2036 under the pessimistic scenario.
- Charts/tables referenced (authors’ projections) show means:
  - With Human Capital Augmented Labor (81 combinations): Mean = 3
  - Standard (27 combinations): Mean = 2.9

### Key numerical growth decompositions (tables)
- Table excerpts for optimistic scenario, 2014-33 (with Human Capital / Standard; elasticities 0.25, 0.35, 0.50; depreciation 7% and alternatives):
  - Example entries (optimistic):
    - Real growth, Y: 4.0 14.2 34.5 64.2 34.4 24.7 0  (table layout preserved in source)
    - Contributions (sample rows):
      - L: 1.01, 0.88, 0.68, 0.36, 0.31, 0.24
      - K: 1.22, 1.70, 2.43, 1.22, 1.70, 2.43
      - A: 1.78, 1.65, 1.45, 2.66, 2.41, 2.03
  - Example entries (pessimistic, 2014-33; depreciation 5%, 7%, 10%):
    - Real growth, Y: 1.62, 1.78, 2.03, 2.17, 2.26, 2.39 (with Human Capital) and 1.53, 1.64, 1.82, 2.06, 2.10, 2.17 (Standard) and similar lower rows.
    - Contributions (sample rows):
      - L: -0.09, -0.08, -0.06, -0.42, -0.36, -0.17
      - K: 0.72, 1.00, 1.43, 0.72, 1.00, 1.43
      - A: 0.99, 0.86, 0.66, 1.87, 1.62, 1.24

(Note: tables in source provide detailed matrices by elasticity and depreciation assumptions; above preserves numeric fragments as presented.)

### Policy options to raise the long-run growth rate (Section VI)
- Main policy priorities identified:
  - (i) improving investment and savings rates;
  - (ii) labor market reforms;
  - (iii) investment in education and education reform;
  - (iv) further reforms to reduce bottlenecks and increase productivity.
- To raise medium-term growth to 6 percent would require:
  - Investment to GDP ratio to rise to about 40 percent (compared to projection average of 23 percent under the baseline); or
  - Labor market openness to accept about 25 thousand migrant workers per year.
  - A combination: increase investment ratio by about 10 percentage points compared to projection average (to reach Mauritius’ historical highs) and integrate about 12 thousand migrant workers per year would be sufficient.
- Note on complementarities:
  - Increased FDI and/or foreign skilled labor likely raise TFP via technology and skills transfers, reducing required adjustments.

### Investment and capital formation (Section A)
- Needs and constraints:
  - Upgrade and expand capital stock, especially infrastructure, to improve competitiveness and facilitate knowledge-based transformation.
  - Improve investment rates via:
    - (i) acceleration in implementation of current investment projects;
    - (ii) measures to encourage FDI and domestic savings.
  - Public capital budget actual expenditure has been low, pointing to design and implementation capacity constraints.
  - Financing constraint: low fiscal space due to need to reduce public debt levels in accordance with the Debt Law; investments would need other financing channels.
- Historical and comparative evidence:
  - Investment rates and FDI’s share in investment were relatively low in Mauritius compared to Singapore and Hong Kong.
  - Domestic savings rate currently about 15 percent of GDP; historical levels around 25 percent.
  - Recommendation: medium-term fiscal adjustment and pension reform could help increase savings rate.
  - FDI’s historical role: technology transfers; FDI share in domestic investment rose to 20 percent by 2010 (still about one-fifth of similar ratios for Singapore and Hong Kong).
- Business environment and access to credit:
  - World Bank Ease of Doing Business: Mauritius ranks 9th in Africa and 53rd in the world on the access to credit subcategory in 2013.
  - Improving creditor protection and information sharing institutions can raise private credit to GDP.

### Labor market (Section B)
- Labour force and unemployment trends:
  - Share of foreign workers in labor force rose from 0.2 percent in 1990 to 4 percent in 2009.
  - Female unemployment rose from 2 percent in 1990 to over 10 percent by 2009; total unemployment over 8 percent in 2013.
  - Demand shifted to skilled workers in financial services, ITC, and tourism versus low-skilled textile and sugar sectors.
- Institutional features and reforms:
  - Remuneration Orders: separate labor market regulations by industry specifying duties and compensation.
  - National Pay Council (2006) linked wage growth to productivity; reversal to national tripartite negotiations in 2010 may reduce competitiveness (under old system wages linked to CPI; real wages grew faster than labor productivity in 2000–2006).
  - Rigid pay determination and complex regulations limit structural change and job creation; absence of firm-level collective bargaining prevents firm- and sector-specific adjustments.
  - Guiding reform principle suggested: protect the worker, not the specific job.
- Labor supply challenges:
  - EPZ sector shifted to employing foreign workers (predominantly Chinese female workers on three-year contracts) due to unattractiveness of EPZ jobs to Mauritian workers and greater flexibility/skills of foreign workers.
  - Structural unemployment solution: retraining programs and improving SMEs environment (Business Facilitation Act of 2006) and self-employment as job creation channels.
- Demographics:
  - Very long-term projections suggest working-age population will decline from about 2025–2100 (based on unchanged migration and fertility assumptions).
  - Potential implication: very long run growth rates might be lower due to scarcity of labor; policy influence possible via migration, fertility, and increasing female labor force participation.

### Human capital (Section C)
- Education attainment and gaps:
  - Around a third of students consistently fail the Certificate of Primary Education (CPE).
  - Failure concentrated in poor households; CSO Poverty Analysis for 2006/07: 65 percent of heads of poor households and 60 percent of poor household members (aged 20 and over) haven’t passed the CPE; national averages 39 percent and 34 percent respectively.
  - Tertiary enrollment rose from 3 percent to 43 percent between 1990 and 2009.
  - Labor force educational attainment:
    - Share with only primary education decreased by 20 percent between 1990 and 2010, but remains 3.5 times higher than in the Asian Tigers (where only about 10 percent have only primary education).
    - Tertiary attainment: 10 percent in Mauritius versus 30 percent in the Asian Tigers.
- Policy needs:
  - Increase secondary and tertiary enrollment rates.
  - Education reforms to deliver relevant skills for transforming economy.

### Productivity (Section D)
- Necessity for productivity growth:
  - With labor and capital constrained, future growth must rely substantially on productivity improvements for transition to high-income economy.
- Reform avenues to raise productivity:
  - (i) upgrades and restructuring of public utilities;
  - (ii) public enterprise reform;
  - (iii) investments in road decongestion;
  - (iv) a growth friendly tax regime;
  - (v) growth-enhancing public expenditures;
  - (vi) further improvements in the business environment.
- Public sector and utilities:
  - Public utilities (water, electricity) need efficiency improvements and infrastructure upgrades.
  - Water supply: universal access to potable water, but water rationing occurs due to leakage and non-market tariff schedules.
  - Public enterprises control significant parts of the economy and do not always operate according to market principles; reforms could increase efficiency and fiscal space.
  - Road and public transport investment needed to reduce traffic jams and optimize national road system.
- Tax and fiscal policy:
  - Tax system generally well-functioning with low and stable rates; suggested improvements:
    - Greener taxes on energy and congestion;
    - Further broadening of the VAT;
    - Reduction in tax exemptions for civil servants;
    - More reliance on real estate taxes.
  - Social benefit reform: means-testing and better targeting to free resources for human and physical capital.
- Business environment:
  - Further reforms needed in getting credit, enforcing contracts, closing a business, and registering property to support private sector discovery and technology absorption.
  - Maintain Mauritius as a friendly environment for private sector to attract firms from India and China.

### Conclusion (Section VII)
- Past success factors:
  - Transition to high-middle income powered by well-managed Export Processing Zone, trade diplomacy, spending on education, avoiding currency overvaluation, and facilitating business.
- Determinants of joining high-income status:
  - Ability to improve labor skills, infrastructure quality, and speed of technology adoption.
  - Need to attract FDI, generate domestic investment, and sustain image as open, stable, well-functioning for business.
- Long-run policy considerations:
  - Analyze policies to attract foreign high skilled labor, increase fertility rates, and raise labor force participation.
  - Reforms in pensions, public enterprises, social benefits, and the tax system can make public sector more efficient.
  - Macroeconomic policies to increase public and private savings can create room for further productive investments.

*Source: Authors’ projections and analysis in the supplied content.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp14134.pdf_