OPIC : THE MAIN DETERMINANTS OF ECONOMIC GROWTH IN RWANDA: AN ECONOMETRIC ANALYSIS

Abstract

This paper examines empirically the causal relationship among exports, gross capital formation, foreign direct investments and economic growth using a multivariate autoregressive VAR model for Rwanda over the period 1980-2012. The results of cointegration test suggested that there is three cointegrated vectors between the examined variables, while Granger causality tests showed that there is a bi-directional causal relationship between the per capita GDP and the ratio of gross fixed capital formation to GDP. Also There is a unidirectional causal relationship between the ratio of exports to GDP and the ratio of foreign direct investments to GDP with direction from exports to foreign direct investments, a unidirectional causal relationship between the ratio of foreign direct investments to GDP and the per capita GDP with direction from foreign direct investments to per capita GDP, and final a unidirectional causal relationship between the ratio of exports to GDP and the ratio of gross fixed capital formation to GDP with direction from exports to gross fixed capital formation . The findings show that in the short-run an increase of 1% on ratio of exports to GDP will lead to an increase of 0.12% on per capita GDP, an increase of 1% on the ratio of gross fixed capital formation to GDP will lead to an decrease of 0.2% on per capita GDP, while increase of 1% on ratio of foreign direct investment to GDP will lead to an decrease of 0.051% on per capita GDP, but the speed of adjustment back to equilibrium is 3.7 percent annually adjustments in the short run however the value of coefficient is statistically significant at 10 percent but insignificant at 5 percent.