Trade potential of Rwanda: Policy implications from taxonomic analysis of quality of institutions

ABSTRACT

The aim of research is to examine the tendencies in the positions of Rwanda over the years in institutional development and the potential trade directed to main trade partners. We evaluated the quality of institutions in Rwanda against the background of the Eastern African countries using method of taxonomy and assessed how Rwanda uses its potential in trade and its coverage in actual exports. We tested the hypothesis that the better quality of institutions is found, Rwandan indicative trade potential coverage ratio is higher. Results confirmed that the relation between quality of institutions and the indicative trade potential coverage ratio is not obvious in every product group, however, in most cases, there is a positive relationship. Moreover, the analysis allowed us to identify markets characterised by high export potential and still not adequately used.

KEYWORDS:

• Rwanda
• institutional development
• indicative trade potential
• East Africa

JEL CLASSIFICATION:

• c1
• f14
• f17
• o1

Acknowledgment

The article is the result of the research project ‘Chinese New Silk Road strategy: implications for production linkages between China and Central and Eastern Europe’ financed by the National Science Centre, Poland (UMO-2016/23/D/HS4/02748).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 We used the division into regions according to the UNCTAD.

2 Two of these studies are Duodu et al. (2020) and Yushi & Borojo (2019).

3 This method was first presented and applied in working paper (Cieślik, 2018).

4 Some of results were presented in working paper (Cieślik, 2018).

5 We decided to use this index instead of Worldwide Governance Indicators, because we believe that the first measure taking into account African governance reality better.

6 Similar set of variables was used in (Havrylyshyn, 2010).

7 ‘Tax havens are low-tax jurisdictions that offer businesses and individuals opportunities for tax avoidance.’ (Hines, 2007).

8 In 2019 the EU finance ministers agreed to remove the UAE, Switzerland and Mauritius from the lists of economies deemed to be acting as tax havens, a move that activists called a ‘whitewash’ (Reuters, 2019).

9 This strict assessment perhaps does not consider the latest plans of Rwandan government which are connected to improvements in educations (e.g. ICT in education, promoting quality education) and infrastructure (e.g. new railway line (Mombasa-South-Sudan- Kampala-Kigali; almost 96% of paved roads are in good conditions).

10 The Office of the Ombudsman declares that it is largely based on solutions adopted by Botswana.