Low-Rent Mauritius as a Developmental Counterfactual for High-Rent Trinidad and Tobago

Abstract

Mauritius’s existential Malthusian crisis at independence incentivized a developmental government to promote competitive diversification through a dual track reform strategy. The Mauritian government deployed its modest tapering rent stream to expand a dynamic market economy in Track 1 while postponing reform of the rent-distorted economy in Track 2 until the market economy could absorb it. Mauritius shows how expanding labour-intensive exports absorbs surplus labour, which triggers the labour-market turning point when structural change drives competitive diversification into more skill-intensive manufacturing and a proliferating range of export services (tourism, ICT, and finance). Critically, the omission of the labour-intensive industrialization phase of the competitive diversification model in Trinidad and Tobago prompted governments to combat rising unemployment by deploying rent to subsidize uncompetitive jobs. Even after a growth collapse, policy remained rent dependent because gas-based industrialization is a minimal economic diversification.