Financial Development and Real Gross Domestic Product in Rwanda

Abstract

Real gross domestic product as a macro-economic indicator measures the value of economic output after adjustment for price changes. In this regard, due to the role played by financial development in economic growth, financial intermediation has been regarded as an important factor in boosting gross domestic product in the both developed economies and developing economies. The study investigated the effect of financial development on Real Gross Domestic Product in Rwanda. The study adopted e<i>x post facto </i>design. Time series data were collected from 2011-2022 and Ordinary Least Squares (OLS) was deployed. Findings revealed that financial liberalization, domestic credit to private sector, monetary policy rate, market capitalization and all share index jointly and significantly influenced real gross domestic product (<i>Adj. R<sup>2</sup> =</i> 78.65%<i>, p = </i>0.009028 < 0.05, F-stat = 9.108778) in Rwanda. The study concluded that financial development enhanced real gross domestic product in Rwanda. It was recommended that the government of Rwanda should improve on real gross domestic product by improving financial development through more liberalization of the financial sector, expansion of domestic credit to the private sector, market capitalization, all share index and use of monetary policy rate as effective channel of monetary transmission mechanism in the economy.