Explaining Income Divergence in the Western Indian Ocean: Evidence from Mauritius, Seychelles, Madagascar, and Comoros

IMF Working Papers, August 7, 2026

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Canonical URL: Explaining Income Divergence in the Western Indian Ocean: Evidence from Mauritius, Seychelles, Madagascar, and Comoros

Mauritius and Seychelles achieved significantly higher levels of real GDP per capita since 1980, while Madagascar and Comoros exhibited more limited progress.
The analysis points to the importance of institutions, human capital, and external integration in explaining cross-country differences in income levels across the four island economies.

Combines qualitative analysis with panel econometric methods: FMOLS and DOLS.
Uses real GDP per capita as the primary outcome variable to assess divergent development paths since 1980.

Institutional quality: associated with higher levels of real GDP per capita.
Human capital development: associated with higher levels of real GDP per capita.
Trade openness: associated with higher levels of real GDP per capita.
Macroeconomic policies: associated with higher levels of real GDP per capita.
Interpretation: stronger governance frameworks and investment in human capital align with higher income levels in Mauritius and Seychelles; persistent institutional and structural challenges align with lower income levels in Madagascar and Comoros.

Strengthen governance frameworks to improve institutional quality.
Invest in human capital development to raise real GDP per capita.
Promote external integration through trade openness to support economic performance.
Maintain sound macroeconomic policies to facilitate higher income levels.