The role of the capital market in the economic growth of Rwanda

Ing. Ishimwe Sambwe Nicole

Master's thesis

Abstract:

The goal of the thesis is to find and assess the role between capital market in the economic growth of Rwanda. Ordinary least square (OLS) method has been used to measure this role and to determine if there is relationship between these two variables using Rwandan annual data from 2007 to 2019. The analysis is based on independent varibales such as the market capitalization, market turnover and rwanda share index as the determinants of capital market in Rwanda. In order to capture the effects of other factors that could impact the GDP, we have included in the model the unemployment rate and the consumer price index (inflation) as contol variables. Correlation analysis reveals that there is a positive relationship between the market capitalization (MC) and GDP (r=0.359), market turnover (MT) and GDP (r=0.36). However, we observe the negative relationship between Rwanda Shares Index (RSI) (r=-0.32) and the GDP growth. OLS estimated parametors demonstrate that there is a statisticaly and significant positive relationship between market capitalisation, market turnover and GDP at 5% level of significance. However, there is a negative and statistically significant relationship between rwanda share index and GDP. To conclude, the capital market play role in the economic growth of Rwanda at the extent to which market capitalization increase GDP by 0.85% (p=0.0017), while market turnover contributes at 0.05% (p=0.0012). the rwanda share indix reduces the real GDP by 0.023% (p=0.0453). However, other macroeconomic variables such as inflation and unemployment rate exert effects on the economic performance of Rwanda, which in turn could worsen the performance of the stock market. Estimates reveals that unemployment rate decreses the real GDP by 5.2% while stable price level would increase the real GDP by 6.6%. We encourage the gouvernment of Rwanda and the capital market authorital to conduct a policy that attracts SMEs and foreign investors to improve the contribution of the capital market. We also recommend the government to oversee the the problem of unemployment and maintain price stability.

Abstract:

The goal of the thesis is to find and assess the role between capital market in the economic growth of Rwanda. Ordinary least square (OLS) method has been used to measure this role and to determine if there is relationship between these two variables using Rwandan annual data from 2007 to 2019. The analysis is based on independent varibales such as the market capitalization, market turnover and rwanda share index as the determinants of capital market in Rwanda. In order to capture the effects of other factors that could impact the GDP, we have included in the model the unemployment rate and the consumer price index (inflation) as contol variables. Correlation analysis reveals that there is a positive relationship between the market capitalization (MC) and GDP (r=0.359), market turnover (MT) and GDP (r=0.36). However, we observe the negative relationship between Rwanda Shares Index (RSI) (r=-0.32) and the GDP growth. OLS estimated parametors demonstrate that there is a statisticaly and significant positive relationship between market capitalisation, market turnover and GDP at 5% level of significance. However, there is a negative and statistically significant relationship between rwanda share index and GDP. To conclude, the capital market play role in the economic growth of Rwanda at the extent to which market capitalization increase GDP by 0.85% (p=0.0017), while market turnover contributes at 0.05% (p=0.0012). the rwanda share indix reduces the real GDP by 0.023% (p=0.0453). However, other macroeconomic variables such as inflation and unemployment rate exert effects on the economic performance of Rwanda, which in turn could worsen the performance of the stock market. Estimates reveals that unemployment rate decreses the real GDP by 5.2% while stable price level would increase the real GDP by 6.6%. We encourage the gouvernment of Rwanda and the capital market authorital to conduct a policy that attracts SMEs and foreign investors to improve the contribution of the capital market. We also recommend the government to oversee the the problem of unemployment and maintain price stability.

Keywords

\Capital market, \economic growth, \market capitalization, \market turnover, \Rwanda.

Language used: English

Date on which the thesis was submitted / produced: 12. 7. 2021

Thesis defence

• Date of defence: 2. 2. 2022
• Supervisor: Ing. Dagmar Vágnerová Linnertová, Ph.D.
• Reader: Ing. Luděk Benada, Ph.D.

Masaryk University

Faculty of Economics and Administration

Master programme / field:
Finance / Finance