The Effect of Capital Flight on Economic Growth in Rwanda

Capital is the most important factor of production particularly in a developing economy. Capital flight is probable to have negative influences on equality, with wealthy residents escaping better taxation, or decrease after-tax returns at domestic, at the same time as poorer citizens face better taxation and cuts in social offerings. The study adopted the Investment Diversion Theory and Debt Overhang Theory. The study adopted an ex-post facto research design with a sample length of 32 years from 1990 to 2022 and trusted secondary statistics from Rwanda country wide statistics (RNS), the applicable financial group of Rwanda (NBR) and the Ministry of Finance and economic making plans (MINECOFINE). Findings, indicate correlation between paying off external debt and economic development. Profits Repatriations had a coefficient and a great opportunity rate both of which had been large. This showed that Rwanda experiences economic growth in the same year that profit repatriations decrease annually. The foreign portfolio investment outflow has a coefficient and a non-significant probability. This indicates that the relationship between the outflow of overseas portfolio investment and economic. The study encourages Rwanda to comply with its current external debt policy through international credit standards. Governments should issue guidelines to encourage foreign portfolio investors to invest in offshore markets to optimize national economic growth and foreign portfolio investment outflows. Capital controls should be put in place to prevent capital outflow from the country. Furthermore, critical, and conscious efforts may be made to deal with the contemporary macroeconomic conditions uncertainty to mitigate the effect on capital flight.