The Impact of Financial Liberalization on the Economic Growth of Ethiopia: A Panel Data Approach

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Date

2012-06

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A.A.U

Abstract

This paper attempts to evaluate the impact of financial liberalization on the banking sector performance and economic growth of Ethiopia , using annual data covering the period 2004-2011. The Housman test for the random effects regressions is imposed by the RE estimation are valid and the repressors are, uncorrelated with the bank random effect estimator, consistent and efficient. The findings of the study showed that there is a small performance gap between private and public banks. Therefore, if foreign banks were permitted to enter the Ethiopian banking system the result might be the narrowing of the efficiency gap, measured by cost-asset ratio, the interest-rate spread and ROA between public and private banks. However, this might not be creating positive effects on Ethiopia's national economic growth. Because oreign banks with more capital and more experience will take over the domestic financial sector, which is presently, lead by banks that are too small, young and inexperienced to compete.

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Keywords

Financial liberalization, bank performance, ROA

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