Analysis of Service Sector Development and its Determinants in Rwanda

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.