ELASTICITY ANALYSIS OF RWANDAS ECONOMY WITH RESPECT TO EAC COUNTRIES TRADE RELATIONS: AN EMPIRICAL APPROACH.

Abstract

This dissertation is an empirical study which analyses the elasticity of Rwandas Economy with respect to EAC countries Trade relations. The study aims at scrutinizing how Rwandas Economy is responsive with respect to Trade with EAC

and particularly to know if Rwandas exposure to EAC Trade has been a significant contributor to its Economic Growth. The study found primarily that there is a positive relationship between Rwandas Trade with EAC and Rwandas Economy. Therefore it is certain that Rwandas Economy and its Trade with EAC move together in the same directions (whether up or down). Furthermore it was found that Rwandas Economy (GDP) is inelastic vis-à-vis Trade with the EAC. This means that the elasticity is greater than zero but less than one. Therefore Rwandas Economy (GDP) responds to changes in Trade with the EAC in the same direction although in smaller proportions. And finally from the study it was also clear that Rwandas Economic Growth (GDP Growth) was moderately sensitive with respect to Growth of Trade with the EAC. This means that the relationship between these two variables is not yet a one to one. Therefore Rwandas Economic Growth (GDP Growth) adjusts somewhat slowly (in the same direction) to the variation in the Growth of Trade with the EAC in the Long Run. Thus in general Rwandas exposure to Trade with EAC has been moderately a significant contributor to its Economic Growth. One major policy implication of these results, as the study emphasizes, is stronger/robust Pro-EAC Trade policies by the Government of Rwanda which will increase Trade with the EAC, above all Rwandas Exports to EAC, this will have a significant and positive impact on Rwandas overall Economy particularly its performance with regards to EAC Trade.