Analysis of how Economic Growth in Developing Countries is Influenced by Public Borrowing: A Case Study of Rwanda
Keywords:
External debts, IMF loan, internal debts, public debt.Abstract
Aim: This study sought to analyze how economic growth in developing countries is influenced by public borrowing referencing on Rwanda as a case study.
Methods: The study used time series data from 1980 to 2018. The study used domestic debt and external debt to analyze how it influences Rwanda’s Gross Domestic Product (GDP). To achieve this objective, secondary data was collected from the National Bank of Rwanda and the debt office in Rwanda. The study employed multiple regression model to identify the relationship between the dependent variable (GDP) and the independent variables (domestic debt and external debt). The t-test was used to confirm the formulated hypotheses at the 5% significance level.
Results: The study found out that a positive relationship exists between IMF Loan and Rwanda’s gross domestic product, while a negative relationship exists between domestic debts and Rwanda’s gross domestic product, which violates the Keynesian theory of public debt.
Conclusion: The study concludes that both domestic and external debt significantly affect economic growth in Rwanda.
Recommendation: The study recommend that developing countries should develop a good structure of Debt Management Office including a plan for capacity building in order to make its proper debt strategy analysis without external support. The study also recommend developing countries to reduce reliance on internal borrowing to reduce competition between citizens and the government which can reduced economic growth. Furthermore, the study recommend developing countries to account for public debts and ensure that such debts are solely acquired for economic purposes rather that political purposes.
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