Inflation and Economic Growth in Rwanda

The main objective of the study was to investigate the impact of inflation on the economic growth of Rwanda. The specific objectives of this research included analyzing the inflation trends in Rwanda from 1989 to 2021, examining the influence of inflation on Rwanda's economic growth, and assessing the effects of control variables such as imports and exchange rates on the country's economic growth. This study draws upon various economic theories and empirical studies that categorize these variables into dependent and independent variables. In this analysis, we considered inflation as the dependent variable, while imports and exchange rates served as independent variables. The data for this research were sourced from secondary data available on the World Bank's website. We employed econometric techniques, including unit root tests, which revealed that all variables exhibited an I (1) order of integration. This led us to conduct the Johansen cointegration test, which confirmed the existence of a long-term relationship between the dependent and independent variables. The long-term coefficients unveiled a negative association of 0.35 units between inflation and economic growth. Furthermore, a negative correlation was observed between economic growth and both imports and the exchange rate. Additionally, we conducted a block exogeneity Granger causality test, which identified a causal relationship from inflation to economic growth and an impact of inflation on the exchange rate. The post-estimation analysis indicated the absence of econometric issues, affirming the model's stability and reliability.