. It represents changes over time in the general level of prices of goods and services acquired by Mauritian consumers. Inflation is then calculated by comparing the average level of prices during a 12-month period with the average level during the preceding 12-month period.
One of the most fundamental objectives of macroeconomic policies of many countries, whether industrialised or developing, is to sustain high economic growth together with low inflation. Inflation can bring about uncertainty about the future profitability of investment projects particularly when high inflation is also linked with increased price variability. This would in turn generate more conservative investment strategies, which would ultimately result in lower levels of investment and economic growth.
Inflation is expected to have a negative effect on growth as claimed by Barro (1995) who explored the inflation-economic growth relationship using a large sample covering more than 100 countries from 1960 to 1990.
4.4.5 Exports (EXP)
Export entails the sale of goods and services produced in one country to other countries. There are two types of exporting: direct and indirect. For national accounts statistics, exports consist of transactions in goods and services from residents to non-residents. As such, an export of a good represents a change of ownership from a resident to a non-resident; this does not necessarily imply that the good in question physically crosses the frontier; while an export of services consists of all services rendered by residents to non-residents.
The relationship between export growth, foreign direct investment and economic growth in both developed and developing countries is a question that continues to be of considerable interest. Cross-country trade and capital flows and interpreting the significance of these activities towards economic growth lie at the heart of the debate on economic development policy since the early literature on export and economic growth.
Export is expected to impact positively on growth as postulated by Feder (1982), who mentioned that exports contribute to economic growth in a variety of ways: economies of scale and incentives for technological improvement. Thus, marginal factor productivities are expected to be higher in export industries than in non-export industries.
4.5 Data Sources
For the purpose of this study, time series data has been used. A time series is an ordered chain of values of a variable at equally spaced time intervals. Time series analysis is used for economic and sales forecasting, budgetary analysis, inventory studies or stock market analysis. It encompasses techniques to investigate data in order to extract meaningful statistics and other characteristics of the data.
A time series model indicates that observations close together in time will be more closely correlated than observations further apart. As such, time series models use the natural one-way ordering of time so that values for a given period can be expressed as deriving in some way from past values.
Data has been collected for the period 1976 to 2009. Figures for the explanatory variables namely investment and exports and that for the dependent variable real gross domestic product were obtained from the Central Statistical Office. Data for inflation and tourism receipts was obtained from annual reports of the Bank of Mauritius.
The analysis of data will be done using the Microfit 4.0 software. Before carrying out the regression, the stationarity of the variable should be tested in order to avoid spurious results and invalidity of the model. The ARDL model will be evaluated. Furthermore, a co-integration test shall be performed to determine if an Error Correction Model (ECM) must be used.