Analysis of Rwandan Economic Performance Before and After the 1994 Genocide

Abstract

This article analyses economic performance of Rwanda between 1973 and 2011. The economic history of Rwanda during this period can be divided into three periods i.e. pre-genocide period (1973-1989), inter-genocide period (1990-1994) and post—genocide period(1995-2011). Real GDP (constant 2000 US$) was used as the dependent variable and as a proxy for economic performance. The explanatory variables used were all expressed as percentages of GDP. They included Domestic Investment (DI), Foreign Direct Investment (FDI), Domestic Savings (DS) and Trade (TR).Chow test based on data for the entire period (1973-2011) rejected the null hypothesis of no structural change/break. After exclusion of observations for the conflict and genocide period, the Chow test  corroborated by the Wald test further showed strong presence of structural break for the pre and post genocide periods. The apparent existence of structural change for the two regimes suggests that the disequilibrium impact of genocide on the Rwandan economy was transitory. This could be explained by the interventions and policies initiated by post genocide leadership to develop, pacify and unite the people of Rwanda. Although structural change was established for the pre and post genocide periods, the change did not emanate from the shift in the intercept, but rather from slope vectors. This means the unobserved qualitative characteristics of the two regimes were similar but that the policies which led to changes in the
explanatory variables impacted differently on performance in the two regimes. Incidentally, it was found out that the bulk of the difference in the models across the two regimes was explained mainly by changes in the intercept, DI and FDI.

Keywords: Economic performance, structural change/break, pooled model, fixed effects model, separate regressions, subset of coefficients.