Abstract:
The methodology used in this research was a longitu time series to analyze the effect of
interest rate on economic growth in Burundi over the period of 2006-2019. This study used
time series techniques to collect secondary data on gross domestic product (GDP), interest
rate, inflation and gross investment in Burundi. Data analysis was done through a multiple
linear regression to analyze the relationship between interest rates and economic growth. On
the other hand, the results for from R squared were used to analyze the importance of the
interest rate for economic growth in Burundi. The Augmented Dickey-Fuller technique and the
Phillips Perron (PP) test were used for the stationary test. From the findings on the Adjusted R
squared, the study found that there was variation of 78.11% on economic growth of Burundi
due to changes in real interest rate, inflation and gross investment. The multiple linear
regression output indicates that there was a strong positive relationship between interest rate
and economic growth. The study further revealed that real interest rate, inflation and gross
investment positively influence economic growth of Burundi. At 5% level of significance and
95% level of confidence, real interest rate, inflation and gross investment were strongly
significant. The predicted model was assessed using Shapiro Wilk W test, test for
heteroscedasticity, test for serial correlation and multicollinearity and found to be a valid
model for decision making. From these findings, that there is need for the government to
control real interest rate as it was found that real interest rates strongly and positively
influenced economic growth of Burundi. Similarly, it was recommended that inflation and
gross investment should be controlled because they are considered useful as they helps
boost consumer demand and consumption and driving to economic growth.
