Informatics Publishing Limited

Abstract

The credit to private sector plays an important role in the development of many countries as it boosts investment in creation of stock of fixed assets through gross capital formation. The Government of Rwanda encourages the private sector contribution in boosting the economic growth of Rwanda. The Gross Capital formation speeds up a country’s economic growth since it contributes to improved national output through change in fixed assets and inventory and creation of employment through rapid investment. The purpose of this study was to analyze the effects of credit to private sector on gross capital formation in Rwanda (2008-2017) using VAR approach. The study adopted quantitative descriptive research design. Time series data for the period 2004 to 2016 regarding the variables were sourced from BNR, NISR and WHO reports. the analysis of data was aided by E-Views software and presentation of findings was done in tables and graphics. The research is important to government policy makers as it provides appropriate strategies to increase capital accumulation in Rwanda hence accelerating economic growth through promotion of credit to private sector (CPS). Cointegration results indicated existence of a long run relationship between credit to private sector and gross capita formation. There is positive significant effect of credit to private sector on gross capital formation in Rwanda. The study findings further indicate that credit to private sector accounted for 95.49% of deviations in gross capital formation.  The study recommends that the government should encourage credit advancement to private sector so that private actors are able to undertake investments in capital accumulation to improve production and create employment, hence speed up economic growth of Rwanda.

Keywords

Full Text