Abstract:
The purpose of this study was to explore the impact of Foreign Direct Investment (FDI) Net
Inflows on economic growth in Rwanda. In this study secondary data were used and they cover
the time period from 1991-2022. This study attempted to determine empirical impact of FDI
on Rwandan economy using macroeconomic annual time series data of gross domestic product
as dependent variable and foreign direct investment, gross capital formulation and exports
which are considered as the endogenous variables. This study used the Error Correction Model
(ECM) to analyse both short-run and long-run impact of foreign direct investment (FDI) on
Rwanda's economic growth from 1991 to 2022 and the research used the Johansen
Cointegration test to analyse the long-run relationship. The study aimed to ascertain if inflows
of foreign direct investment impact positively or negatively, the real GDP growth in the long
run. The study revealed a statistically insignificant and negative association between real GDP
growth and FDI inflow in long-run and insignificant and positive relationship between real
GDP and FDI net inflow in short-run. Furthermore, the study revealed a positive and significant
relationship between gross capital formation (GCF), exports and the real GDP.
