Effect of Foreign Direct Investment on Economic Growth in Rwanda
DOI:
https://doi.org/10.53819/81018102t2277Abstract
The research study aimed to examine the effects of foreign direct investment (FDI) on the economic growth of Rwanda, with a specific focus on Rwanda. The study sought to explore the relationship between FDI and key economic indicators such as the inflation rate, exchange rate fluctuations, and balance of trade, to gain insights into the overall impact of FDI on Rwanda's economic development. The research adopted a mixed-methods approach, combining quantitative and qualitative data collection and analysis. Data were collected through questionnaires and documentary research. Documentary research involved analyzing archival data from the BNR to obtain historical information and supporting evidence on FDI and its impact on economic growth in Rwanda. Quantitative data were analyzed using python 3, employing statistical techniques, including descriptive statistics, correlation analysis, and regression analysis. These analyses explored the relationships between FDI and economic growth indicators, such as the inflation rate, exchange rate fluctuations, and balance of trade. Qualitative data obtained from documentary research were thematically analyzed to gain a deeper understanding of the stakeholders' perspectives on the consequences of FDI in Rwanda. The research findings confirm that Rwanda Both inflation and economic growth rates in Rwanda have shown upward trends. Inflation started relatively low at 2.3% in 2017-2018 and gradually increased to 4.6% in 2021-2022. Economic growth also began at 3.4% in 2017-2018 and rose to 4.6% during the same period. Rwanda has demonstrated a noteworthy relationship between exchange rate stability and economic growth. The exchange rates remained consistently stable, fluctuating between 4.3% and 4.6%, indicating a favorable environment for international trade and investments. Simultaneously, Rwanda's economic growth rates steadily climbed from 3.4% to 4.6%, reflecting effective economic policies and investments. Rwanda's economic landscape is characterized by a consistent trade deficit in its Balance of Trade (BOT), ranging from -US$1,144.30 million to -US$2,000.40 million. Simultaneously, Rwanda experienced steady economic growth, with growth rates climbing from 3.4% to 4.6%. The research recommends to ensure economic stability in Rwanda, it is crucial to maintain inflation control through prudent fiscal and monetary policies. Additionally, diversifying the export portfolio, especially in agriculture and manufacturing, can reduce the trade deficit. Investment in export infrastructure, such as transportation and logistics, will boost competitiveness globally. Promoting both domestic and foreign investment, particularly in export-oriented sectors, will stimulate economic growth, create jobs, and address the trade deficit issue.
Keywords: Foreign Direct Investment, Economic Growth, Rwanda
References
Afzalur, R. . (2016). The Role of Foreign Direct Investment in Economic Growth. Review of Development Economics, 20(2), 436-449. doi: 10.1111/rode.12183.
Afzalur, R. (2016). The Role of Foreign Direct Investment in Economic Growth. Review of Development Economics, 20(2), 436-449. doi: 10.1111/rode.12183.
Blanchard, O., & Johnson, D.R. (2013). Macroeconomics (6th ed.). Boston: Pearson. ISBN: 978-0-273-76570-4.
Buckley, P.J., Clegg, J., & Wang, C. (2017). Is the Relationship between Inward FDI and Spillover Effects Contingent on Host-country Conditions?. Journal of International Business Studies,, 38(4), 447-461. doi:10.1057/palgrave.jibs.8400264.
Carlin, W., & Soskice, D. . (2015). Macroeconomics: Institutions, Instability, and the Financial System. Oxford University Press, ISBN: 978-0199655793.
Mankiw, N.G., & Taylor, M.P. . (2017). Economics (4th ed.). Boston: Cengage Learning. ISBN: 978-1-305-66692-4.
Mohammad, S. N., Shahbaz, M., & Saidi, K. . (2008). Growth and Energy Independence: A Nexus Analysis for Pakistan. International Journal of Energy Economics and Policy, 2(3), 119-137.
RDB. (2019, May 23). rdb.rw. Retrieved from rdb.rw: Retrieved from https://www.rdb.rw/fileadmin/user_upload/documents/Annual_report_2019.pdf
Romer, D. . (2018). Advanced Macroeconomics (5th ed.). Chicago: McGraw-Hill Education. ISBN: 978-1260185213.
Smith, J. . (2022). The Effects of Foreign Direct Investment on Economic Growth in Rwanda: Role of the National Bank of Rwanda. Journal of Development Economics, 15(3), 123-145.
