IJSSER

Title: FOREIGN CAPITAL INFLOWS AND ECONOMIC GROWTH IN RWANDA
Authors: Ntirushwamaboko Dominique, Nuwagira Wilberforce
\|\| \|\|
Ntirushwamaboko Dominique, Nuwagira Wilberforce National Bank of Rwanda
MLA 8 Dominique, Ntirushwamaboko, and Nuwagira Wilberforce. "FOREIGN CAPITAL INFLOWS AND ECONOMIC GROWTH IN RWANDA." Int. j. of Social Science and Economic Research, vol. 4, no. 1, Jan. 2019, pp. 457-480, ijsser.org/more2019.php?id=37. Accessed Jan. 2019. APA Dominique, N., & Wilberforce, N. (2019, January). FOREIGN CAPITAL INFLOWS AND ECONOMIC GROWTH IN RWANDA. Int. j. of Social Science and Economic Research, 4(1), 457-480. Retrieved from ijsser.org/more2019.php?id=37 Chicago Dominique, Ntirushwamaboko, and Nuwagira Wilberforce. "FOREIGN CAPITAL INFLOWS AND ECONOMIC GROWTH IN RWANDA." Int. j. of Social Science and Economic Research 4, no. 1 (January 2019), 457-480. Accessed January, 2019. ijsser.org/more2019.php?id=37.
References [1]. Aitken, B. and Harrison, A. (1999), "Do Domestic Firms Benefit from Foreign Direct Investment? Evidence from Venezuela", American Economic Review, Vol. 89 No. 3, pp. 605-618. [2]. Ajayi and Oke ( 2002) External Debt and Economic Growth: Evidence from Nigeria Alfaro, Laura, Sebnem Kalemli-Ozcan, and Vadym Volosovych (2008): "Why doesn't capital flow from rich to poor countries? An empirical investigation," Review of Economics and Statistics, 90(2), 347-368" [3]. An Empirical Analysis", World Applied Sciences Journal 29 (2): 193-201, 2014, Government Postgraduate College Kot Sultan, Layyah, Pakistan. [4]. Aurangzeb and A. UI Haq(2012): "Impact of Foreign Capital Inflows on Economic Growth in Pakistan", European Journal of Economics, Finance and Administrative Sciences, issue 46 [5]. Barajas, A., Gapen, M.T., Chami, R., Montiel P. and Fullenkamp, C. (2009), "Do workers' remittances promote economic growth?", IMF Working PaperWP/09/153, Washington DC, International Monetary Fund, pp. 22. [6]. Boakye, P. F. (2008), "Foreign Aid and Economic Growth in Ghana (1970-2005)", unpublished Masters Dissertation, University of Science and Technology, Kumasi, Ghana. [7]. Borensztein, E., J. Gregorio, and J. Lee (1998): "How does foreign direct investment affect Economic Growth?" Journal of International Economics, 45 (1), pp. 115-135. [8]. Chenery, H. B. and Stout, A. (1966): "Foreign Assistance and Economic Development", The American Economic Review, Vol. 55, pp.679-733 [9]. De mello (1999), foreign direct investment-led growth: evidence from time series and panel data Driffield, N. and Jones, C. (2013), "Impact of FDI, ODA and migrant remittances on economic growth in developing countries: a systems approach", European Journal of Developmental Research, Vol. 25 No. 2, pp. 173-196. [10]. Driffield, N. and Jones, C. (2013), "Impact of FDI, ODA and migrant remittances on economic growth in developing countries: a systems approach", European Journal of Developmental Research, Vol. 25 No. 2, pp. 173-196. [11]. Elphas Ojiambo 1, Kennedy Nyabuto Ocharo (2016), "Foreign capital inflows and economic growth in Kenya", International Journal of Development and Sustainability, Volume 5 Number 8: Pages 367-413. [12]. Emeka Nkoro and Allen Owusibo Furo (2016), Foreign Capital Inflows and Economic Growth in Nigeria: An Empirical Approach; Academic Journal of Interdisciplinary Studies, Published by MCSER-CEMAS-Sapienza University of Rome 2012. [13]. Engle, R.F. and Granger, C.W.J., (1987) "Cointegration and Error Correction: Representation, Estimation and Testing", Econometrica, 55. [14]. Falki, N. (2009): "Impact of Foreign Direct Investment on Economic Growth in Pakistan", International Review of Business Research Papers, 110-120. [15]. Fayissa, B. and Nsiah, C. (2010)' "Can Remittances Spur Economic Growth and Development? Evidence from Latin American Countries" available at: http://www.frbatlanta.org/documents/news/conferences/10intdev/10IntDev-Fayissa.pdf, (accessed on 16 June 2018). [16]. Fortainer, F. (2007), "Foreign Direct Investment and Host Country Economic Growth: Does Investor Country of Origin Play a Role", Transitional Corporation, Vol. 16 No.2, pp. 42- 76. [17]. Giles, J. (1994), "Another Look at the Evidence on Foreign Aid Led Economic Growth", Applied Economics Letters, Vol. 1 No. 11, pp. 194-199. [18]. Gong, L. and Heng-fu, Z. (2001), "Foreign Aid Reduces Labour Supply and Capital Accumulation", Review of Development Economics, Vol. 5 No. 1, pp. 105 - 118. [19]. Granger, C. (1969), "Investigating Causal relations by Econometric Models and Cross-Spectral Methods", Econometrica, Vol. 37, pp. 424-438. [20]. Haddad, M. and Harrison, A. (1993), "Are There Positive Spillovers from Direct Foreign Investment? Evidence from Panel Data from Morocco", Journal of Development Economics, Vol. 42 No. 1, pp. 51-74. [21]. Ikechi, K.S. and Anayochukwu, O.B. (2013), "Migrants' Remittances and Economic Growth in Sub Saharan Africa: Evidence from Nigeria, Ghana and South Africa", Interdisciplinary Journal of Contemporary Research in Business Research, Vol. 4 No. 10, pp. 534-550. [22]. Johansen, S. and K. Juselius(1990): "Maximum Likelihood Estimation and Inference on Cointegration with Application to Demand for Money," Oxford Bulletin of Economics and Statistics, 52, Pp 169-210. [23]. Kargbo, P.M. (2012), "Impact of Foreign Aid on Economic Growth in Sierra Leone Empirical Analysis", UNU-Wider Working Paper No. 2012/07. [24]. Karras, G. (2006), "Foreign Aid and Long-run Economic Growth: Empirical Evidence for a Panel of Developing Countries", Journal of International Development, Vol.18 No.7, pp.15-28. [25]. Knack, S. (2000), "Aid Dependence and the Quality of Governance: A Cross-Country Empirical Analysis", World Bank Policy Research Paper. [26]. Levine, R. and Carkovic,M. (2002), "Does Foreign Direct Investment Accelerate Economic Growth?",University of Minnesota miNjeru, J. (2003), "The Impact of Foreign Aid on Public Expenditure: The Case of Kenya" AERC Research Paper No. 135, November. [27]. Macias, B.J. and Massa I. (2009), "The Global Financial Crisis and Sub Saharan Africa: The Effects of Slowing Down Private Capital Inflows", Overseas Development Institute, Working Paper 304. [28]. Malik, S., Hayat, M. U., & Hayat, M. K. (2010): "External Debt and Economic Growth: Empirical Evidence from Pakistan, International Research Journal of Finance and Economics, (44), 88-97. [29]. Mallik, G. (2008), "Foreign Aid and Economic Growth: A Cointegration Analysis of the Six Poorest African Countries", Economic Analysis and Policy, Vol. 38 No. 2, pp. 251-265. [30]. Miller, S. and F. Russek (1990): "Cointegration and Error Correction Models: The Temporal Causality Between Government Taxes and Spending', Southern Economic Journal, 57, 221-229. [31]. Mim, S.B. and Ali M.S.B. (2012), "Through Which Channel Can Remittances Spur Economic Growth in MENA Countries?",Economics, Vol.6, No.33, pp. 1-27. [32]. Mosley, P., Hudson, J. and Horrell, S. (1987), "Aid, the Public Sector and the Market in Less Developed Countries", Economic Journal, Vol. 97 No. 388, pp. 616-41. [33]. Murthy, V., Ukpolo, V. and Mbaku, J.M. (1994), "Foreign Aid and Economic Growth in Cameroon: Evidence from Cointegration Tests", Applied Economics Letters, Vol.1 No. 10, pp. 161- 163. [34]. National Bank of Rwanda (2017), "Foreign Private Investments in Rwanda, Kigali, Rwanda. [35]. Newlyn, W.T. (1973), "The Effect of Aid and Other Resource Transfers on Savings and Growth in Less Developed Countries: A Comment", Economic Journal,Vol. 83 No. 331, pp. 863- 69. [36]. Ocharo, K.N. (2015), "Remittances and Economic Growth in Kenya",Merit Journal of Accounting, Audit, Economics and Finance, Vol. 3 No. 1, pp. 001-016. [37]. Ocharo, K.N., Wawire, N.W., Kiriti-Ng'ang'a, T. and Kosimbei G. (2014), "Private capital inflows and economic growth in Kenya",International Journal of Development and Sustainability, Vol. 3 No. 4, pp. 810-837. [38]. Papanek, G.F(1973): "Aid, Foreign Private Investment, Savings and Growth in LDC", Journal of Political Economy, vol. 81, No.1, Pp 120-130 [39]. Rangarajan, C., (2000) "Capital Flows: Another Look", Economic Political Weekly, 9, 4421-27. [40]. Ray, S. (2012), "Impact of Foreign Direct Investment on Economic Growth in India", Advances in Information Technology and Management, Vol. 2 No. 1, pp. 187-201. [41]. Rosenstein-Rodan, P.N. (1961), "International Aid for Underdeveloped Countries", The Review of Economics and Statistics, Vol. 43 No. 2, pp. 107-48. [42]. Rubyutsa Jules (2012), The Role of Remittance in Development: The Case of Rwandan Diaspora' Remittances. National University of Rwanda, Rwanda Journal Volume 26, Series B, 2012: Social Sciences, Rwanda. [43]. Serletis, A., and M. King (197): "Common Trends and Convergence in European Stock Markets", The Manchester School of Economics and Social Studies, 65, Pp 44-57. [44]. Sethi, N. and Patnaik, K.U.S. (2015), "Impact of international Capital flows on India's Economic Growth", available at http://www.researchgate .net/publication/237628709 (accessed on 02 September 2015). [45]. Sethi, N. and Patnaik, K.U.S. (2017), "Impact of international Capital flows on India's Economic Growth", available at http://www.researchgate .net/publication/237628709 (accessed on 02 September 2015). [46]. Sethi, Narayan and Patnaik, Uma Shankar K. (2007) "International Capital Flows on India's Economic Growth-In View of Changing Financial Market", The Indian Journal of Economics, 45 (348). [47]. Sharafat Ali (2014), "Foreign Capital Flows and Economic Growth in Pakistan: [48]. Siddique, A., Selvanathan, E.A. and Selvanathan, S. (2010), "Remittances and Economic Growth: Empirical Evidence from Bangladesh, India and Sri Lanka. University of Western Australia, Department of Economics", Economics Discussion Papers, No. 10- 27, available at:http://www.business.uwa.edu.au/school/disciplines/ecomomics (accessed on 16 June 2018). [49]. UNCTAD (2017): World investment report, United Nations, New York, USA. [50]. Waheed, A.(2004): "Foreign Capital Inflows and Economic Growth of Developing Countries: A Critical Survey of Selected Empirical Studies", Journal of Economic Cooperation, Vol. 25, No.1, Pp 1-36. [51]. World Bank (2017): World Doing Business Report, Washington, USA. [52]. World Bank (2018): World Doing Business Report, Washington, USA.
Abstract: The assessment of the impact of foreign private capital has become a topic of interest to economists and policy makers given that it is essential for developing countries to bridge the savings gap for domestic economic development. Assessing the impact of foreign capital inflows on countries' development is of current interest by many economists in various countries. In this paper, we empirically investigate the impact of foreign capital flows on economic growth in Rwanda. The empirical analysis builds on quarterly data spanning the period 2009Q1-2017Q4 and employs multivariate Johansen cointegration and parsimonious error correction model to estimate the specified relationship in the model. The empirical results show that there exists long run relationship foreign direct investment, foreign aid, remittances, external borrowing and economic growth in Rwanda. The normalized coefficients indicate that foreign direct investment; remittances and foreign aid are positive and statistically significant implying that they positively influence economic growth. The parsimonious error correction model reveals that it takes close to eight quarters to adjust the deviations from the equilibrium path. The policy implication arising out of these findings is that efforts to attract more capital flows especially foreign direct investment and remittances through improving investment climate and creating avenues for diaspora contributions should be strengthened.

IJSSER is Member of