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

This paper examines the divergent economic development paths of Mauritius, Seychelles, Madagascar, and Comoros since 1980. Despite operating in broadly similar regional and geographic settings, Mauritius and Seychelles achieved significantly higher levels of real GDP per capita, while Madagascar and Comoros saw more limited progress. Combining qualitative analysis with panel econometric methods (FMOLS and DOLS), the paper finds that institutional quality, human capital development, trade openness, and macroeconomic policies are associated with higher levels of real GDP per capita. The results suggest that stronger governance frameworks and investment in human capital are associated with higher income levels in Mauritius and Seychelles, while more persistent institutional and structural challenges are associated with lower income levels in Madagascar and Comoros. Overall, the findings suggest the importance of institutions, human capital, and external integration in economic performance across the four Indian Ocean island economies.