Muhayeyezu Joseph Desire, Patrick Mulyungi
Abstract: Capital formation speeds up a country's economic growth since it contributes to improved national output through change in fixed assets and inventory and creation of employment through rapid investment. This study aims to analyze the factors influencing gross capital formation in Rwanda (2008-2017) using VAR approach. Specifically, the study aimed to assess the influence of credit to private sector on gross capital formation. The study adopted quantitative descriptive research design. Time series data for the period 2004 to 2016 regarding the variables were sourced from RNP, NISR and WHO reports. the analysis of data was aided by E-Views software and presentation of findings was done in tables and graphics. The research is important to government policy makers in coming up with appropriate strategies to increase capital accumulation in Rwanda hence accelerating economic growth. Cointegration results indicated existence of a long run association. There is positive significant effect of credit to private sector on gross capital formation in Rwanda. The study findings further indicate that credit to private sector accounted for 95.49% of deviations in gross capital formation.. The study recommends that the government should encourage credit advancement to private sector so that they are able to undertake investments, improve output and create employment hence speed up economic growth.
Keywords: Gross Capital Formation, economic growth, credit to private sector, domestic savings, foreign capital