Abstract:
This study is intended to assess effects of development factors on Rwanda economic growth, (1970-2022), (such factors are gross domestic saving, population, gross capital formation and gross domestic product) and to confirm if it has an impact on Rwandan economic growth. To
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achieve this study used multivariate time series analysis to analyse the relationship between Foreign Direct Investment and economic growth.
In this study, diagnostic tests and the results confirmed (proved) that the model was good where the independent variables jointly explain the dependent variable. The results test suggests that the variables were not seriously affected by heteroskedasticity and serial correlation problems. The findings found that, Foreign Direct Investment and gross domestic savings determined a decrease in economic growth and Rwandan population, and gross capital formation, determined an increase in economic growth and this analysis indicated that the different diagnostic tests showed that the model was good. The results showed that there is the long run relationship of variables based on the results from the unit root test of residuals of variables. The results also showed that the coefficient of ECM(-1) is negative and it was statistically significant, leading the model to be co-integration between their variables and errors were corrected in the long run and some of the variables were statistically significant. This decline of GDP due to FDI is related to the dependency theory which states that in the host country, FDI can negatively affect its economy. quazi (2004) states that “FDI can have a negative impact on the host country due to capital flight, which is the outflow of domestic capital and hence lead to an adverse effect on the country's current account and foreign exchange account.
