ANALYSIS OF THE EFFECT OF INTERNATIONAL TRADE ON ECONOMIC GROWTH IN RWANDA DURING THE PERIOD OF 2012 TO 2023

Abstract

International trade has been recognized as a key driver of Rwanda's economic growth, playing a crucial role to achieve high-income status by 2050. This study examines the effect of international trade on Rwanda's economic growth from 2012 to 2023. The research used secondary data obtained from the National Institute of Statistics of Rwanda (NISR), Using the Auto-Regressive Distributed Lag (ARDL) model, the study explores the long-run relationships and cointegration between international trade and economic growth, The results of the short-run analysis indicate a minimal but negative impact of domestic shocks, with LGDP showing a trend of -0.002096. Despite global events such as the Russia-Ukraine war, COVID-19, and agricultural challenges, Rwanda's economy demonstrated resilience. Key variables like LEXPORTS (0.441051) and LIMPORTS (0.652726) significantly contributed to GDP growth, reflecting the expansion of Rwanda’s trade sector. Short-term fluctuations were observed in LEXPORTS (-1) (-0.062354) and trade openness (TO) (-1.979680), mainly due to external vulnerabilities. However, the positive impact of TO (-1) (0.136363) indicates that previous periods of trade openness positively influenced current GDP growth, the error correction term (-0.993884) is significant, showing a rapid adjustment speed of 99%, that is, within the next quarter, deviations from the long-run equilibrium are corrected. This highlights a strong relationship between international trade and economic growth, indicating that despite short-term fluctuations, Rwanda's GDP reverts to its long-run equilibrium over time. The study recommends enhancing trade facilitation policies and strengthening outward-oriented strategies to sustain and further boost Rwanda's economic growth