Agriculture output and economic growth of Rwanda (Period under study 1966 to 2019)

Abstract

In most developing countries, mainly in sub-Saharan Africa, most of the population live in rural areas and earn their livelihoods primarily from agricultural activities. Agriculture is recognized as the engine for the growth of the economy of most developing nations of the world. However, the role of agriculture as key to economic growth has never stopped to be the subject of debates among economists. The purpose of this study is to determine the relationship between agriculture and economic growth and investigate the effect of agriculture to the economic growth of Rwanda. The study is conducted using annual time series data running from 1966 to 2019. The study employs Johansen co-integration test and Vector Error Correction model (VECM) as the estimation techniques. The results of the study reveal that the Gross Domestic Product growth, agriculture growth, export growth and gross capital formation growth have a long-run equilibrium relationship according to the Johansen co-integration test while the VECM result shows that the speed of adjustment of variables towards their long-run equilibrium path was low, estimated at 5.75%. Also, the results have shown that the impact of agriculture growth on gross domestic product growth is significantly important. This implies that Rwanda community continues to benefit from agriculture activities.