Determinants of total factor productivity in the Rwandan Services Sector

Abstract

It is perceived worldwide that the service sector is important especially in boosting economic growth and generating employment opportunities. More importantly in most developing countries, Rwanda included, the share of the sector towards GDP growth as well as economic transformation is undeniably paramount given that the industry sector has not developed. The study used both the fixed model to calculate service firm’s TFP and the pooled OLS regression analysis to analyze the main driving factors for the Rwandese service sector total factor productivity using the firm-level panel data from the census surveys of 2014 and 2017 which covered 165,108 service enterprises. The study findings show that the firm’s export status, R&D activities, technology from foreign workers and the formal status are statistically significant and have a positive impact on Rwanda’s service sector TFP. Also, being in the small, medium, and large service firm category is related to its productivity. These categories of Rwandan service sector are positive and statistically significant. The domestically owned enterprises have a positive but statistically insignificant association with Rwandan service establishments. Finally, firm location (dummy for urban) is negative but statistically significant associated with TFP.