This paper analyses the relationship between Foreign Direct Investment and economic growth as
measured by Gross Domestic Product in Rwanda for the period 1970-2010. We adopted a Vector
Autoregressive model, to analyze this relationship: determined the lag structure, verified the
stationarity of both series, and explored cointegration and causality between economic growth and
Foreign Direct Investment. Our findings established that a bivariate VAR (1) was the appropriate model,
and that Gross Domestic Product and foreign direct investment are stationary at first differences but
not at levels. Hence, the two series are integrated of order one. Tests of cointegration indicate that the
two variables are cointegrated, implying there is a long-run equilibrium relationship between the two
series. The Vector Error Correction show that Foreign Direct Investment responds to the change in
Gross Domestic Product, but that Gross Domestic Product doesn’t respond to the change in Foreign
Direct Investment. Granger tests suggest that Gross Domestic Product and Foreign Direct Investment
are independent (no causality between them) for the Rwandan economy