Abstract:
The service sector is an avenue for economic transformation, as not all countries have a
competitive edge in manufacturing. The growing literature on service sector have primarily focused
on the conditions in the United States of America, Europe and Asian emerging service economies
like India and China. As a result not as much of attention been paid to the role that services can
play in the economic growth of African countries due to agriculture prevalence. But, with the
avenues of structural adjustment and globalization features, some African countries tends to
becoming service-based economies. Services are considered as an alternative to manufacturing-led
development in Rwanda since the latter aims at becoming a service-based hub to serve the East
African Community countries. Recently, service sector growth rate has been the most impressive in
the Rwandan economy. The present study is an attempt to study in detail the services sector growth
over the years in Rwanda’s economy and empirically estimate the determinants of service sector
growth by using econometric methodology. The empirical results are based on microdata collected
during the Rwanda-Enterprise Survey 2011 and 2014 Establishment Census. The survey contains
data on 241 firms and establishment. Limited dependent variable techniques is employed to
investigate the factors behind the services sector growth. Logistic regression is applied to assess
factors contributing to the innovation and total sales growth in the service firms. The results point
out the contributing factors of the service sector growth. These factors can be used in public policy
aimed to speed up the shift form low income to middle income state of the economy.
