This paper examined the relationship between banking sector development and economic growth in Ethiopia. The paper also examines the effect of banking development on economic growth in Ethiopia and to establish which theory holds for Ethiopia between the demand-following and the supply-leading theory.
Unlike the majority of previous studies, this study uses the newly developed ARDL-bounds testing approach to examine the relationship. The ARDL-bounds testing approach has numerous advantages over other co-integration techniques, especially when a short time-series dataset is used. In order to test the robustness of the empirical results, three proxies of bank-based financial development have been used; namely: 1) the domestic credit provided by the banking sector as a ratio of GDP, 2) broad money supply as a ratio of GD, 3) private credit as percentage of GDP. Annual time series data between the years 1987 and 2019 were used for the study, from the National Bank of Ethiopia (NBE) statistical bulletin.
The structural break unit root test revealed that all the variables are stationary at their first difference; the bound test cointegration analysis established the existence of long run relationship among the variables. The ARDL revealed that domestic credit provided by the banking sector significantly affected economic growth in the long run, while private credit statistical significant and negatively affect economic growth in the short run during the period of study. The empirical results of this study show that the effect of banking sector development and economic growth in Ethiopia is sensitive to the proxy used to measure the banking sector development.
The policymakers need to make policies that can lead to establishment of banking institutions in the rural areas which have limited access to banking services and create enabling legal environment for efficient allocation of credit to the private sector at the same time the supervisory organ shall establish conducive environment for banking institution which are engaging in loan granting for diversified economic sectors for private investment.
Inhaltsverzeichnis (Table of Contents)
- CHAPTER ONE
- INTRODUCTION
- 1.1.Background of the Study.
- 1.2.Statement of the Problem.
- 1.3.Objectives of the Study.
- 1.4.Key Research Questions.
- 1.5.Research Hypothesis.
- 1.6.Significance of the Study.
- 1.7.Scope of the Study.
- 1.8.Limitations of the Study.
- 1.9.Organization of the Study.
- CHAPTER TWO
- LITERATURE REVIEW
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This study investigates the relationship between banking sector development and economic growth in Ethiopia, focusing on the impact of banking development on economic growth and testing the validity of the demand-following and supply-leading theories in the Ethiopian context. The research utilizes a newly developed ARDL-bounds testing approach to examine the relationship, taking advantage of its strengths for short time-series data.
- Exploring the relationship between banking sector development and economic growth in Ethiopia
- Analyzing the impact of banking development on economic growth in Ethiopia
- Determining which theory, demand-following or supply-leading, is more applicable to the Ethiopian economy
- Utilizing the ARDL-bounds testing approach for robust analysis
- Examining the effect of different proxies for bank-based financial development on economic growth
Zusammenfassung der Kapitel (Chapter Summaries)
Chapter One: Introduction This chapter sets the context for the study, providing a background on the relationship between banking sector development and economic growth in Ethiopia. It outlines the research problem, objectives, research questions, and hypotheses. The significance of the study, its scope, limitations, and organization are also discussed.
Chapter Two: Literature Review This chapter delves into existing literature, examining previous research findings and theoretical frameworks related to the link between banking sector development and economic growth. It explores various perspectives and methodologies employed in previous studies and highlights relevant insights from the literature.
Schlüsselwörter (Keywords)
The research revolves around the core concepts of bank sector development, economic growth, unit root test, ARDL bounds test, and cointegration. These keywords capture the central focus of the study and its methodological approach to understanding the relationship between banking sector development and economic growth in Ethiopia.
- Quote paper
- Zelalem Birhan (Author), 2020, The Effect of Banking Sector Development on Economic Growth. Empirical Analysis from Ethiopian Economy Final, Munich, GRIN Verlag, https://www.grin.com/document/1417074
