The Relationship between Commercial Banks’ Development Economic and Growth in Ethiopia
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Date
2015-05
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Addis Ababa University
Abstract
The central objective of the study to empirically investigate the impact of commercial banks’
development in the Ethiopian economic growth. To undertake this study, six explanatory
variables were considered namely deposit, loan and advances, assets, government expenditure,
export and inflation rate. The first three were indicators of development of commercial banks
and considered as main independent variables whereas the last three were control variables. The
present research has adopted mixed research approaches. Therefore, the study used both
secondary and primary sources of data. The current study considers total population of eighteen
commercial banks, which are currently operating in Ethiopian banking industry. Of the total
population eight commercial banks were selected using purposive/ deliberate sampling
techniques. For this study unit root tests, co integration and granger causality tests were
conducted. Thus, the study w used both Augmented Dickey Fuller (ADF) test and Philip Perron
(PP) unit root test. The result suggested that except RGDP and ASSET all variables were
stationary at level whereas when they are first difference all variables were stationary. The study
has conducted Johansson co integration test to know whether variables have long run
association ship so the result indicated a long run relationship among variables. Moreover, the
study conducted granger causality test to know causality among variables and found that deposit
has granger cause economic growth, economic growth granger cause loan and advances and no
casual relationship is found among economic growth and asset. The study adopted different
analysis techniques include descriptive statistics and multivariate regression analysis. The study
found that a positive and significant relationship among economic growth, deposit and loan and
advances whereas negative and significant association ship between economic growth and bank
size i.e. asset. Furthermore, in relation to control variables both inflation and exports have been
positively and significantly associated with economic growth while the study has found negative
and significant relationship between economic growth and government expenditures. Finally, to
maintain and sustain economic growth all stakeholders to whom concerned should have to pay a
paramount attention for commercial banks considering their influence in the overall economic
prospects. In addition, wistful government expenditures has to be eradicated, exports has to be
encouraged and target inflation need to be maintain in order to realize dramatic economic
growth in the country Ethiopia.
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Key words: Ethiopia, commercial banks, economic growth, commercial banks’ dev
Description
Keywords
Ethiopia, Commercial banks, Economic growth, Commercial banks