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Projects_Econometrics

Assignment

Uploaded by

nyandwi charles
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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The Impact of Population Growth on Economic

Growth in Rwanda (1992-2022)


Nyandwi Charles
ECONS428: Econometrics Project

1. Introduction
Economic growth and population dynamics are deeply interlinked, particularly in devel-
oping countries. Rwanda, a Sub-Saharan African nation, has experienced both rapid
population growth and notable economic development in recent decades. Between 1992
and 2022, Rwanda’s population doubled, growing from approximately 5.5 million to over
13 million. Simultaneously, the country underwent significant GDP growth, driven by
policy reforms, foreign investment, and sectoral transformations. However, the interplay
between population growth and economic performance remains a subject of debate [1].
This study aims to evaluate the impact of population growth on Rwanda’s economic
growth, focusing on how investments in gross capital formation (GCF) mediate this rela-
tionship. Using econometric methods, it seeks to provide insights into the challenges and
opportunities presented by Rwanda’s demographic trends. Understanding these dynam-
ics is critical for formulating effective economic policies, particularly as Rwanda aspires
to achieve middle-income status.
This study examines how population growth influences GDP in Rwanda, focusing
on the mediating role of gross capital formation (GCF). The analysis adopts economet-
ric techniques to evaluate the historical relationship between these variables and their
implications for policy.

2. Summary of the Paper


The analyzed paper investigates the relationship between population growth and GDP
in Rwanda from 1992 to 2022, with a particular emphasis on the mediating role of gross
capital formation. Using time-series econometric analysis, the paper builds a regression
model incorporating GDP as the dependent variable and population growth and GCF as
independent variables. The authors argue that while population growth contributes to a
larger workforce, it also strains resources, infrastructure, and public services, potentially
undermining economic performance.
The results indicate a negative relationship between population growth and GDP, sug-
gesting that Rwanda’s rapid population increase hampers economic growth. In contrast,
GCF positively affects GDP, highlighting the importance of investments in infrastructure
and productive capacity. The model explains 99

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3. Methodology and Mathematical Model
3.1 Mathematical Model
The study employs the following log-log regression model:

log(GDP) = β0 + β1 log(POP) + β2 log(GCF) + ϵt

Where:

• GDP: Gross Domestic Product

• POP: Population

• GCF: Gross Capital Formation

• ϵt : Error term [1].

3.2 Data
The study uses time-series data spanning 1992–2022. GDP serves as the dependent
variable, while population and GCF are the independent variables. The logarithmic
transformation allows interpretation of coefficients as elasticities [1].In other words, the
coefficients represent the percentage change in GDP resulting from a one percent change
in the independent variables, providing a more intuitive understanding of the economic
dynamics at play.

4. Regression Analysis
4.1 Research Questions
1. What is the effect of population growth on GDP in Rwanda?

2. How does GCF mediate the relationship between population and economic growth?

4.2 Results
• Population Growth: A 1% increase in population reduces GDP by 0.0437%. This
suggests resource constraints and pressures on infrastructure as key challenges [1].

• Gross Capital Formation: A 1% increase in GCF raises GDP by 0.736074%,


highlighting its critical role in economic growth [1].

• Model Fit: The R-squared value is 99.3%, indicating that the variables explain
nearly all GDP variation [1].

2
4.3 Diagnostic Tests
• Homoskedasticity: Breusch-Pagan test confirms constant error variance (p =
0.0565) [1].

• Normality: Residuals are normally distributed (Jarque-Bera test, p = 0.729) [1].

• Serial Correlation: No autocorrelation detected (Breusch-Godfrey LM test, p =


0.0565) [1].

• Stability: CUSUM tests confirm model stability [1].

5. Discussion of Results
The findings highlight the dual role of population growth in Rwanda. On one hand,
rapid population growth expands the labor force; on the other, it strains resources and
public services. The negative elasticity of population on GDP aligns with concerns about
overpopulation and insufficient infrastructure [1].
Conversely, GCF’s strong positive impact emphasizes the importance of investments
in infrastructure and productivity-enhancing activities. This finding supports the view
that investment-driven growth is vital for economies facing rapid demographic changes
[1].

6. Critical Discussion on Model Assumptions


6.1 Homoskedasticity
The Breusch-Pagan test confirms homoskedasticity, ensuring the reliability of coefficient
estimates [1].

6.2 Normality
Residuals pass the normality test, validating statistical inference for the coefficients [1].

6.3 Exogeneity
The model assumes no omitted confounders. However, factors like trade, government
policies, or sector-specific investments could also influence GDP [1].

6.4 Linearity
The log-log specification ensures linearity in elasticities. However, nonlinear effects (e.g.,
thresholds for population size) remain unexplored [1].

7. Conclusion
This study highlights that while population growth has a negative effect on GDP in
Rwanda, GCF significantly contributes to economic growth. The findings suggest that

3
managing population dynamics and enhancing investments are critical for sustainable
development.

Policy Implications
• Family Planning: Reduce fertility rates to mitigate resource constraints.

• Investment Promotion: Boost GCF through infrastructure and FDI.

• Human Capital Development: Equip the labor force with skills to enhance
productivity [1].

Future Research
Further analysis should include additional variables like health outcomes or trade, as well
as nonlinear effects of population growth.

References
References
[1] Habakurama, E., & Mukanyandwi, F. (2024). Contribution of Population Growth
on Economic Growth in Rwanda (1992–2022). International Journal of Current Sci-
ence Research and Review, 7 (4), 2293–2300. https://doi.org/10.47191/ijcsrr/
V7-i4-33.

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