The Impact of Bank Lending on Economic Growth in Ethiopia
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Date
2021-07
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Addis Ababa University
Abstract
In Ethiopia, the banking sector is an important part of the financial system. However, studies on the relationship between bank lending and economic growth has not been conclusive. The purpose of this thesis is to investigate the impact of bank lending on economic growth in Ethiopia. By using Autoregressive distributed lag model, the relationship between bank lending and economic growth is investigated. Results from level ARDL model confirms that in the presence of other macroeconomic control variables, the PSC is positively and statistically significantly determining economic growth after some periods (lags) only. On the contrary, bank lending rate is found to be statistically significant in determining economic growth in the current period only. In addition, the granger causality test shows that there is bidirectional causality between bank lending and economic growth; on the contrary, no causal relationship is seen between lending rate and other variables in Ethiopia. The overall findings shows that, although the impact is to some extent depends on the bank lending indicator, the overall evidence suggested that, bank lending is contributing positively to Ethiopian economic growth. Hence, policies to encourage further development in bank lending and the integration of finance sector with other governmental institutions should be designed in improving Ethiopian economy.
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Keywords
ARDL, bank lending, economic growth, Data standardization and Ethiopi