Foreign direct investment, Agriculture and economic growth: ARDL and causality approach for Rwanda

Abstract

This study tested the relationship between Rwanda's economic growth, foreign direct investment, and labor in agricultural spanning between 1970 and 2017. In this paper, the ARDL "bounds" test method is used to analyze the co-integration problem of variables with a constant level relationship. Co-integration coefficients were estimated using the ARDLs model. After verifying the long-term (co-integration) equilibrium relationship of economic growth within the variables, the error correction model is used to estimate the short-term coefficients. We found that agriculture and foreign direct investment have becomes an engine depending of Rwanda's economic development. The FDI has a causal relationship to economic growth; while labor have no causal relationship to economic growth. The Rwandan government should promote macroeconomic policies to encourage foreign direct investment and promote economic growth in agriculture. ABSTRACT JME: https://escipub.com/journal-of-modern-economy/ 1 Xiaoling Yuan et al., JME 2020; 4:13 JME: https://escipub.com/journal-of-modern-economy/ 2