Effect of Money Supply on Economic Growth in Rwanda

International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue VI, June 2020 | ISSN 2454–6186

Effect of Money Supply on Economic Growth in Rwanda

Tharcille INGABIRE ^1*, Josiane UWINEZA¹, Marie Laetitia Benimana², Fabrice Musafiri³, Gloria Berimana⁴, Nancy Clemence Ishimwe⁵, Noel Nshizirungu^6
 1Department of Economics, School of Business and Economics, Kigali Independent University
²Department of Data Science, African Institute for Mathematical Sciences
³Department of Mining Engineering, University of Rwanda, College of Science and Technology
⁴Department of Computer Engineering, University of Rwanda, College of Science and Technology
⁵Mathematics Physics and Geography Combination, Groupe Scolaire de Shyogwe
⁶Department of Economics, College of Natural Sciences, Daegu University, Korea

Abstract: The effect of money supply in enhancing economic growth in Rwanda is investigated in this study. This study aims at assessing the Effect of money supply on economic growth in Rwanda through economic growth (GDP) per capita in Rwanda. The study uses Rwanda National Bank and World Bank data from 2008 to 2018. This study used the autoregressive distributed lag (ARDL)-bounds testing to co-integration and Ordinary Least Squares regression technique for analysis of the data to assess the impact of money supply on GDP per capita in Rwanda. The study model is composed of five macroeconomics variables which are Gross Domestic Product per capita, Money supply, Lending Interest Rate, Gross Capital Formation and deposit rate. The study findings Shows a statistical significant positive association between money supply and economic growth in Rwanda both in short run and long run. This study suggests that money supply should be increase at a steady rate by keeping pace with the growth of Rwandan economy.

Keywords: money supply, Rwanda, economic growth, Lending Interest Rate, Ordinary Least Squares regression

I. INTRODUCTION

Money supply is a principal macroeconomic element that impacts the economic growth by ensuring that all economic activities are running effectively in private and public sectors(1). Money supply impact on economic growth in Rwanda has received little coverage. Yet, it is significant and crucial to establish the impact that money supply has on economic growth in Rwanda so that for policy makers can effectively base on to grow the economy.
Most countries has a monetary policy that focuses basically on holding low inflation which is often associated with money supply increase. From management of the central banks and international financial organizations representatives point of view, financial markets are controlled and significant fluctuation is avoided however, money is a commodity as it’s lack leads to the price increase as well as other goods that have money as an equivalent. Also economic growth impact positively health sectors in fighting diseases(2, 3) and development in general, therefore money supply compression may lead to demand inflation and deterioration of quality of life(4).

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