The purpose of this research project was to assess the impact of interest rates on economic growth in Rwanda from 1998 to 2020. In conducting this research, three objectives were to determine the factors that influence interest rate on Rwandan economy, to assess the level of economic growth in Rwanda from 1998 to 2020, and to assess the relationship between interest rates on economic growth in Rwanda from 1998 to 2020. To achieve these objectives, literature were reviewed on the subject matter, and then data was collected with annually reports published by BNR, NISR and MINECOFIN through inflation rate, GDP and Interest rate. Documentation review was used as a tool for data collection.
Table of Contents
1. GENERAL INTRODUCTION
1.0. Introduction
1.1. Background to the study
1.2. Statement of the problem
1.3. Objectives of the study
1.3.1. General objective
1.3.2. Specific objectives
1.4. Research questions
1.5. Scope of the study
1.5.1 Content scope
1.5.2 Geographical scope
1.5.3. Scope in time
2. LITERATURE REVIEW
2.0. Introduction
2.1. Conceptual review
2.2. Empirical review
2.2.1. Factors affect interest rate
2.2.1.1. Inflation rate
2.2.1.2. Exchange rate
2.2.1.3. Deposit interest rate
2.2.2. Economic growth
2.2.2.1. National output
2.2.2.2. National income
2.3. Relationship between interest rates and economic growth
2.4. Theoretical Framework
2.4.1. Keynesian theory
2.4.2. Monetarism Theory
2.4.3. Neoclassical Theory of Economic Growth
2.5. Conceptual framework
2.6. Critical review
2.7. Research gap identification
3. RESEARCH METHODOLOGY
3.0. Introduction
3.1. Research design
3.2. Target population
3.3. Sources of data
3.4. Data collection instrument
3.5. Data collection procedure
3.6. Data processing
3.7. Data analysis
4. DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1. Introduction
4.2. Data presentation and interpretation
4.2.1.1. Stationary/unit root test
4.2.2. Exchange rate and economic growth
4.2.3. Deposit interest rate
5. SUMMARY OF MAJOR FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1. Introduction
5.2. Summary of major findings
5.2.1. To determine the factors that influences interest rate on Rwandan economy
5.2.2. To assess the level of economic growth in Rwanda from 1998 to 2020
5.2.3. To assess the relationship between interest rates on economic growth in Rwanda from 1998 to 2020
5.3. Conclusion
5.4. Recommendations
Objectives and Core Themes
The primary objective of this research is to evaluate the impact of interest rates on the economic growth of Rwanda over the period from 1998 to 2020. The study aims to determine the specific factors influencing interest rates, assess the overall trend of economic growth in the country, and explore the quantitative relationship between interest rates and GDP performance using econometric modeling.
- The influence of inflation, exchange rates, and deposit interest rates on economic performance.
- Application of the Augmented Dickey-Fuller test to establish variable stationarity.
- Analysis of the long-term versus short-term transmission mechanisms of interest rate policies.
- The role of monetary and fiscal policy in stabilizing the Rwandan economy.
Excerpt from the book
2.4.3. Neoclassical Theory of Economic Growth
Neoclassical growth theory is an economic theory that outlines how a steady economic growth rate results from a combination of three driving forces: labor, capital, and technology. The National Bureau of Economic Research names Robert Solow and Trevor Swan as having the credit of developing and introducing the model of long-run economic growth in 1956. The model first considered exogenous population increases to set the growth rate but, in 1957, Solow incorporated technology change into the model. The theory of economic growth states that short-term equilibrium results from varying amounts of labor and capital in the production function. The theory also argues that technological change has a major influence on an economy, and economic growth cannot continue without technological advances. However, neoclassical growth theory clarifies that temporary equilibrium is different from long-term equilibrium, which does not require any of these three factors. The economic growth theory posits that the accumulation of capital within an economy, and how people use that capital, is important for economic growth. Further, the relationship between the capital and labor of an economy determines its output. Finally, technology is thought to augment labor productivity and increase the output capabilities of labor.
Summary of Chapters
CHAPTER ONE: This chapter provides an introduction to the research, outlining the background, problem statement, objectives, research questions, and the scope of the study.
LITERATURE REVIEW: This chapter reviews theoretical and empirical literature related to interest rates, economic growth, and the factors influencing their interaction.
RESEARCH METHODOLOGY: This chapter outlines the research design, data sources, and econometric models used to assess the impact of interest rates on Rwanda's economy.
DATA PRESENTATION, ANALYSIS AND INTERPRETATION: This chapter presents the empirical data, diagnostic tests, and statistical analysis performed using E-views 7 software to interpret findings.
SUMMARY OF MAJOR FINDINGS, CONCLUSION AND RECOMMENDATIONS: This final chapter synthesizes the results, draws conclusions regarding the impact of interest rates, and provides policy recommendations for the Rwandan government and central bank.
Key Words
Interest rates, Economic growth, Rwanda, Inflation rate, Exchange rate, GDP, Monetary policy, Fiscal policy, Deposit interest rate, Econometric analysis, Investment, Savings, Capital accumulation, Financial liberalization, National output.
Frequently Asked Questions
What is the core focus of this research project?
The research fundamentally examines the empirical relationship between interest rates and economic growth in Rwanda over a twenty-three-year period, specifically from 1998 to 2020.
What are the primary themes analyzed in this study?
Key themes include the role of inflation, the impact of exchange rates, the behavior of deposit interest rates, and the effectiveness of monetary and fiscal policies on the nation's GDP.
What is the overarching research goal?
The primary goal is to determine how interest rate fluctuations affect the Rwandan economy and to identify the critical factors that have shaped economic growth during the study timeframe.
Which scientific methodology is employed?
The study utilizes a quantitative research approach, specifically employing multiple linear regression analysis and the Augmented Dickey-Fuller test to ensure statistical validity of the secondary data.
What topics are covered in the main body of the work?
The body covers conceptual and empirical literature reviews, the theoretical framework (Keynesian, Monetarist, and Neoclassical theories), research methodology, and detailed statistical presentation and interpretation.
How would you characterize the keywords defining this work?
The work is defined by terms focusing on macroeconomics, specifically interest rate dynamics, GDP growth, monetary policy, and structural economic shifts in developing nations like Rwanda.
How does inflation affect the Rwandan economy according to the results?
The findings indicate that while inflation may have a positive short-term effect on GDP (0.657141), it has a significant negative impact on long-term economic growth (-1.843799).
What does the study conclude regarding exchange rates?
The research concludes that exchange rates positively influence Rwanda's GDP when export volumes of products such as coffee, tea, and minerals are sufficiently high.
What is the conclusion regarding deposit interest rates?
The study suggests that financial institutions should encourage long-term deposits, noting a positive correlation between deposit interest rates and GDP, which helps in providing necessary liquidity.
What are the main recommendations for the Rwandan government?
The researcher recommends prudent budget management, reducing unnecessary national expenditure, increasing per capita income, and keeping inflation at a healthy, manageable level.
- Quote paper
- Nyandwi Valens (Author), 2022, Effect of Interest Rates on Economic Growth in Rwanda (1990-2020), Munich, GRIN Verlag, https://www.grin.com/document/1195204
