Introduction

The introduction chapter of this dissertation provides the justification and purpose of the study, explains the research problem itself, defines the research objectives and highlights the scope of the study.

1. Background to the research

Policymakers and financial experts usually acknowledge that financial development- that is, a well-functioning financial system contributes to economic growth. A well-organised financial system can encourage economic growth through several channels by providing effective financial institutions and markets that help to overcome market resistance introduced by information asymmetries and transaction costs.

Empirical studies on the link between financial development and economic growth have been analysed mostly by cross country cases until lately because of lack of enough time series data for developing countries. These researches have shown regularly that financial development is an important determinant of economic growth. However, even though the conclusion of these studies provides an appropriate guideline for the finance-growth nexus, it cannot be applied to all economies, as each specific country is regulated by its own financial institutions and policies. In this dissertation we are going to analyse the finance-growth relationship for one country only, Mauritius).

The island of Mauritius is a fascinating country to study, because Mauritius over the past four decades have evolved from a mono-crop economy, depending on the production of sugar-cane to a mixed economy, pushed by export-oriented manufacturing, tourism and hospitality and the more recent developing sectors – financial services and Information Communication and Technology. Mauritius is considered an upper middle income group in the Sub-Saharan Africa (developing only). It has been upgrading its position in international indexes for the rule of law (first in the Sub-Sahara Africa on rule of law index), investment (14^th worldwide on the ease of starting a business and the strength of investor protection) and ease of doing business (ranking 19^th of 183 countries on the 2012 Doing Business Index).

Since the late 1980s, the financial sector has been transformed to become the fourth pillar of the Mauritian economy, with the set up of the Stock Exchange in 1989 and the Financial Services Commission in 2001. Mauritius has created various bodies to regulate the financial sector in its various aspects and substantial efforts have been made to revamp the legislative framework in the non-banking financial services sector by introducing amendments and new pieces of legislation. On a macroeconomic level Mauritius has also been doing well in the light of the world crisis in recent years. The government of Mauritius has attempted to mitigate the negative consequences of the global economic crisis through an appropriate policy mix. Thus, as the financial sector has a very important role to play in the development of the economy, this means that we have a good database for sufficient number of years to tackle this study.