Impact of international trade on economic growth in Rwanda over period 2006-2019

Abstract

International trade has been considered as an important tool to boost an economic growth of Rwanda and achieve its aspirations (a high-income economy by 2050). This research is intended to investigate the effect of foreign trade on Rwanda's economic growth (2006-2019). Several scientific research, as well as some economic theories, advocate a positive relationship between international trade and economic development. The Unit Root Augmented Dickey Fuller (ADF) test shows that the order of the sequence was integrated at the same level. Johansen cointegration approach and VECM technique were employed to assess long run and short-run relationship. Long run relationship estimation result shows a positive and significant relationship between trade openness, exchange rate and trade balance with GDP. The relationship between customs duties with Gross Domestic Product was found to be negative and statistically insignificant. Short-run relationship estimation result shows a positive and significant relationship between exchange rate and Gross Domestic Product, while the short run relationship between trade openness, Trade balance and Customs duties were found to be statistically insignificant. The speed of adjustment term was also found to be statistically significant with a negative sign. Basing on above results there is positive relationship between international trade and economic growth. Therefore, I recommend to enhance trade facilitation policy and strengthen outward oriented strategy.