Impact of Remittances on Inflation in Rwanda (1995- 2021)

International Journal of Economics and Management Studies

© 2024 by SSRG - IJEMS Journal

Volume 11 Issue 2

Year of Publication : 2024

Authors : Liliane NIKUZE, Bingzhou WEN , Elias GAKURU, Rachid SEYDOU ABDOU

10.14445/23939125/IJEMS-V11I2P102

How to Cite?

Liliane NIKUZE, Bingzhou WEN , Elias GAKURU, Rachid SEYDOU ABDOU, "Impact of Remittances on Inflation in Rwanda (1995- 2021)," SSRG International Journal of Economics and Management Studies, vol. 11,  no. 2, pp. 15-23, 2024. Crossref, https://doi.org/10.14445/23939125/IJEMS-V11I2P102

Abstract:

The title of this paper is the influence of remittance inflows on Rwandan inflation for the Study Period (1995-2021). Specifically, the study analyzed the effect of Remittances on Inflation in Rwanda from 1995 to 2021. It pointed out the effects of external and money supply on inflation in Rwanda from 1995 to 2021 and provided some policy recommendations concerning the study findings. This study used secondary data collected from the World Bank dataset. Those data were time series data as the study used annual data. Using Eviews-12.0, the econometrics techniques were used to analyze the impact of independent variables (Remittances, External debt and Money supply) on the dependent variable (Inflation). The stationarity test was done to ensure whether to conduct the co-integration test or not. The results obtained after conducting the unit root test have been mixed as some series have been stationary at levels (I(0)), and others have been stationary after the first difference (I(1)). Having mixed unit root test results allowed the researcher to adopt the ARDL Bound co-integration test. The results of ARDL Bound analysis indicated the presence of lasting (long-run) relationships among the study series. The findings from ARDL ECM proved the existence of a significant immediate (short-run) relationship between the study series. With 0.973, it is clear that all explanatory variables together cause a variation of 97.3% to the dependent variable (INF) in the short run. Other factors remaining constant, it was revealed that received remittances possess a direct influence on inflation within Rwanda in the short run. Some recommendations have been given to the government of Rwanda, such as guiding remittances in investment rather than consumption motives, which leads to the growth of the economy. In this way, the financial institution can contribute to orienting remittances into productive investment opportunities like the financial market. Moreover, remittances have a higher contribution towards inflation compared to the other significant variables of the model. Thus, the inflationary effect originating from remittance inflows can be sufficiently controlled by promoting GDP growth. Therefore ensuring the flow of remittances in productive sectors.

Keywords:

Remittances, External debt, Money supply, ARDL, Inflation.

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