Foreign Direct Investment and Rwanda’s Economic Performance (1970-2011)

Abstract

In the past two decades, Rwanda has experienced economic transformation which has attracted international investors. However, it is not clear whether these investment flows have made a significant contribution to economic growth. Such information is important for policy making so as to evaluate the impact of current policy efforts and design future strategies. The main objective of this study was to assess the impact of foreign direct investment (FDI) on Rwanda’s GDP growth per capita from 1970 to 2011. The study was based on two hypotheses which related GDP growth per capita and FDI using World Bank data. Two multiple regression models were estimated. In addition, tests for normality, autocorrelation, heteroscedasticity and multicollinearity were conducted and corrected.  In the first model with GDP per capita growth as dependent variable, four variables namely rural population growth, exports, imports and inflation had a statistically significant effect while FDI was insignificant at the 5% level. In the second model, with FDI as dependent variable, rural and urban population growths were statistically significant. However, GDP per capita growth was not statistically significant. These results have policy implications on the country’s export strategy, inflation and population growth rates.

Keywords: Economic growth per capita, East Africa, foreign direct investment, multiple regression, Rwanda