Abstract: The model uses observed data from 1976 to 2013 on FDI, GDP, Industrial added value, Savings. Unit root test was conducted in order to know if the data are stationary. The co-integration approach was employed to investigate the long-run relationship between export and variables mentioned above. But we first assessed the order of integration of variables, and then assessed co integration among the variables (Long-run relationship) and short-run adjustments to retain the long-run equilibrium. Finally we have analyzed the dynamic relationship between export and hypothesized determinant. After differencing data the unit root test show that the series became stationary, it means the series are found to be integrated of order one i.e I(1) . To the other side Foreign Direct Investment (FDI) become stationary at level. The co-integration is possible because we found that among five series, four are integrated at the same highest order which is order one in our case. The results gave an indication for the existence of a long-run relationship between exports (EXPO), Foreign Direct Investment (FDI), Gross Domestic Product (GDP), and Industrial value added (IVA) and Savings (SAV). The size of the speed of adjustment (-0.80) shows that the economy will converge towards the long run equilibrium in approximately one year following a shock. The empirical results shows that Foreign Direct Investment, Gross Domestic Product, Industrial Value Added are statistically significant in short run. To the other side Savings is not statistically significant; this is because short term deposits are used for early future consumption but not for investment perspectives. The value of R-squared ( R2 ) shows that about 80 % of the variation in exports is explained by the combined effect of all variables considered. It also indicates that the explanatory variables contribute significantly in explaining the exports activity. This is the indicator of a good model which can be used for policy implication.
Keywords: Export, Vector Error Correction Model, Stationarity, Long-run and short-run relationship.
Title: Applying Vector Error Correction to Model Export in Rwanda
Author: GASHEJA Christophe, Dr. Joseph MUNG’ATU, INGABIRE Joselyne, NDAKAZA Jean Napoleon, HAGENIMANA Felix
International Journal of Mathematics and Physical Sciences Research
ISSN 2348-5736 (Online)
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