Financial Deepening and Economic Growth in Ethiopia
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Date
2021-06
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A.A.U
Abstract
This paper focus on examining the effect of financial deepening on economic growth in Ethiopia for
the period ranges from 1980-2019. This paper used time series econometrics model which was
estimated by Autoregressive Distribute Lag (ARDL) to analysis the presence of both long-run and
short-run effect of financial deepening on economic growth in Ethiopia. The financial deepening
proxies used in this study is broad money to GDP ratio, private sector credit to GDP ratio, bank
asset to GDP ratio and bank deposit to GDP ratio and labor, saving, trade openness and dummy
variable for regime change as control variable. The empirical investigation shows that among the
financial proxy used in this study broad money and private sector credit positively and significantly
affect economic growth whereas bank asset and bank deposit negatively and significantly affect
economic growth of Ethiopia. In addition, except the regime change labor force, domestic saving
and trade openness has a positive and significant impact on economic growth. The result of the
study shows that all financial deepening proxy’s which includes broad money, private sector credit,
banks asset and bank deposit has a significant influence on economic growth with different sign.
Finally, this study recommends that the control imposed on the private sector should be relaxed,
deposit mobilized should canalized to their most productive and profitable project, financial sector
should focus on technological advancement, innovation and product variety. Secondary market
should also be given more attention carefully in order to increase financial intermediaries.
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Keywords
Autoregressive Distributed Lag, cointegration, Economic growth, Financial Deepening, granger causality