THE IMPACT OF FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH OF RWANDA (2000-2022)

Abstract

his study has objective to determine the impact of foreign direct investment on economic growth of Rwanda using annual data for the period 2000 to 2022. The descriptive and time series techniques were used to determine the trends of foreign direct investment and to evaluate its impact on economic growth, respectively. These are Unit root tests, ARDL bound of Co integration test to know the existence of long-run relationships between foreign direct investment and economic growth, Error correction method to know the existence of short run relationship among foreign direct investment and economic growth and Granger causality test The results of the unit roots test indicated that one variable was stationary at level (I(0)). That is LGDP. Four variables achieved stationarity after first difference (I (1)). Those are LFDI, LGCF, LIMPORTS and LEXPORTS. This means that they are integrated of the order one, I(1) The ARDL bound of co-integration test results showed that the long-run relationship exists between foreign direct investment and economic growth. The results of the long run showed a positive association between FDI and economic growth. As concerns the control variables, except gross fixed capital formation and export of goods and services which have negative impact on economic growth, other such as imports of goods and services has a positive impact on economic growth. According to results Rwanda recommended to attract more FDI through the following ways: Target specific sectors for FDI, Create a strong institutional framework for supporting FDI, Provide incentives to foreign investor, Promote Rwanda's investment potential to foreign investors.