Service Sector as an Engine of Growth: Empirical Analysis of Rwanda

Abstract

This research was econometrically analyzing Service sector as an engine of growth: empirical analysis of Rwanda from 1995 to 2020. The data were collected from BNR and were analyzed using Eviews7. The study used different opinions of economists concerning the Philips curve, by constructing short-term and long-term Philips curves in Rwanda by making some conclusions about the results at the end. We pay special attention in our research to the study of Phillips curve made by some economists of the last period the findings of this study indicate the following results: *, ** and *** indicates rejection of the null hypothesis of unit root at 10, 5% and 1% significant level, respectively. The SERV, FDI, LR, GR series are not stationary at level, and then we should test the Stationarity at the first difference. (*), (**) & (***) represent respectively 10%, 5% and 1% level of significance.

The results give an indication for the existence of long-run relationship between SERV and growth. The max and trace values statistic strongly reject the null hypothesis for “none “cointegration vector in favor of at least one cointegrating vectors at the 1 percent significance level. The cointegrating vector representing the long run relationship between service and growth. The above is endogenous because its probability of chi-square 0.000025 is less than 5% level of significance and it answers the second hypothesis of a Variable that can help national bank of Rwanda to control money supply in the short-run.

The P- value of chi-square which is 0.0791 and this is greater than 0, 05 level of significant therefore, there is no short run causality between variables running from SERV, FDI, LR and GR at 5% level of significant. The results revealed out from the above table; LSERV, LFDI, LLR and LGR does Granger Cause LSERV at 10% level of significant due to their probability of 0.0284 which is less than 0.10 level of significance but LSERV does not Granger Cause LSERV, LFDI, LLR and LGR at 10% level of significant due to their probability of 0.1224 which is greater than 0.10 level of significance.