TITLE:
Impact of Gross Capital Formation and Foreign Direct Investment on Economic Growth in Rwanda (1990-2017)
AUTHORS:
Jean Marie Vianney Ntamwiza, Fabien Masengesho
KEYWORDS:
Economic Growth, Gross Capital Formation, Foreign Direct Investment, Inflation and Exchange Rate
JOURNAL NAME:
Current Urban Studies,
Vol.10 No.1,
January
10,
2022
ABSTRACT: This study investigates the determinant of economic
growth in Rwanda, using time series data for the period 1990-2017. These data
have been analyzed and interpreted using statistical, analytical,
synthetic methods as well as an econometrical
approach. The economy of Rwanda represents the research gap about the components and determinants of
economic growth as instrument policies to alleviate poverty and rise out
production. The objective was to test the trends and relationship between
capital formation, foreign direct investment and economic growth in Rwanda.
This research tested and confirmed the following: gross capital formation and
foreign direct investment are the main
determinants of economic growth in Rwanda for the period under study. R-square, the overall
measure of goodness of fit indicates that the explanatory variables included in
the above model explain 89.3% of the variation of the dependent variable (GDP
growth) for the long run regression model and 97% for the error correction model. The error correction model shows that
the speed back to equilibrium is 86.4% that is when a shock happens in
the previous period it decreases by 86% in the current period. This indicates
that there is a significant short-run relationship as it was shown by the coefficients of the error correction model which are significant. Based on the existence of a long-run co-integrating
relationship and the short-run interactions, the researcher tested and
confirmed that there was a short-run and long-run positive
relationship between capital formation, foreign direct investment and economic growth in Rwanda during the research period. The study reveals that
capital formation has a significant positive
effect on gross domestic product in the long run. The policy-makers should formulate policies by looking at the
determinants of growth as they are crucial in the process of economic
growth and have a positive remarkable role in the economic acceleration.