The Import Trade Forecasting Model Based on PCA: Evidence from Rwanda

Abstract

A developing country like Rwanda heavily is keen on international trade for several essential goods in the development of an economy. This study investigated the influence of various factors affecting import trade, and use principal component analysis to determine an empirical model for a comprehensive analysis of the influencing factors of import trade of Rwanda using secondary data over the period from 1980-2017. The PCA model showed that Rwanda’s import trade is principally littered with investment fundamental factors, income consumption factors, price factors, inflation factors, and savings factors and the empirical results showed that Rwanda’s import trade is negatively correlated with the investment fundamental and savings factors, the income consumption factors, price factor, and the inflation are positively correlated and therefore the forecast for the period 2018-2025 revealed that the import trade of Rwanda may experience an increase. The implication is that unstable price and currency depreciation cause high income consumption and increased import trade volume. The study advises policy makers on international trade first to pay attention to the accumulation of investment and savings checking if providing support for import trade control and enhance economic security. Second, stabilize the price and manage to keep inflation low and stable. Third, better focus on improving domestic production by not permitting Rwandan currency (Frw) to lose the worth, thus directly forming the necessity for foreign merchandise for investment purposes to increase the level of production exportation, which might have a giant positive impact on saving culture linked to economic growth.