Export diversification and economic growth: The case of Mauritius

The acceleration of global trade in the latter half of the 20th century has seen patterns of trade vastly differing from those predicted by classical trade theories built around perfect competition, comparative advantage and constant returns to scale (Krugman, 1980). Based on Adam Smith’s concept of division of labour and specialization for economic growth and development, and the Heckscher-Ohlin Samuelson (HOS) model of international trade, countries should specialize in producing those goods in which they have a comparative advantage. Recent literature, instead, has found that countries appear to diversify in terms of production and exports as they grow.