The Relationship between Bank Sector Development and Economic Growth: The Case of Ethiopia
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Date
2020-10
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A.A.U
Abstract
study examines the short run and long run relationship between bank sector development
and economic growth in Ethiopia. It covers the annually time series data from 1981-2018 and it
used Vector Error correction Models for estimation technique and Granger Causality test check
the direction of causality. The finding supports that there is no significant relationship between
bank sector development and economic growth in short run, but in long run bank sector
development has significant negative effect on economic growth. This result is different from
theoretical expectation, but it turns out the current situations and inefficiency of banking sector
in providing loans to private sector. This is evidenced by the State-owned banks have on average
of 46 percent of total loan disbursed by banking industry in the year 2014/15-2018/19. The
ganger causality result shows unidirectional causality from bank sector development to
economic growth. It recommends to the government to increase the monitoring and supervisor
role of monetary authority (National Bank of Ethiopian), should liberalize the sector, create
favorable banking environment to bring competition between them.
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Keywords
Bank Sector, Economic Growth, Vector Error Correction, Financial development