Investment and Economic Growth in Rwanda

This research paper aims to examine the effect of investment to economic growth in Rwanda for the period of 1980-2005 using time series data. OLS method is used for the regression analysis. This method is expected to help
to analyze the linear regression model used in this present study. It is expected that FDI is significant to GDP in the present study. The results of model show that FDI and export are not significant to economic growth in Rwanda, whereas labor and GFCF are significant to economic growth in Rwanda. The share of investment to economic growth in Rwanda is still insufficient that is why its impact on economic growth is not significant. The finding shows that granger causality runs one way, from LGDP to FDI not another way. Therefore GDP has useful information to predict investment in Rwanda. A large number of empirical studies on the economic growth and investment in host countries suggest that foreign direct investment is an important source of capital, complements private investment, and is usually associated with new job opportunities and enhancement of technology transfer, and increases overall economic growth in host countries. As the statistics shows that Rwanda is overpopulated country, it is suggested that Rwanda’s government should invest in human capital in order to attract foreign direct investment. If government of Rwanda keeps reforming a number of laws and regulations concerning the investment climate and competitiveness, this could attract more investors in Rwanda.