Economic Modeling of Capital Markets and Sustainable Investments in Rwanda

Abstract

Rwanda needs investments to uplift the level of its economy. This study tests the significance of the capital market for investments in Rwanda. It uses a regression model for the analysis and gives a graphical presentation of the variables used in the model. The study shows that investments, number of shares, turnover, and market capitalization have a trend and intercept. In addition, the test of stationarity shows that investments, number of shares, and turnover are stationary at level, that is, I(0). Market capitalization too is stationary at first difference, that is, I(1). These variables are cointegrated at a 95% confidence interval. In the error correction method, 4.34 quarters or approximately a year and one month are needed to recover from investment downturn in the short run. The long-run relationship between capital market and investments shows that the model fits at 81% using the R² interpretation. It also tests the impulse-response function for observing how shocks affect one another (variables). The capital market needs important support from both the public and private sectors to raise investments in Rwanda because this will have a positive impact on sustainable investments in the country.

Appendix

See Table 1.

Table 1 Results of the vector autoregression estimates