The Contributions of Banking Sector Development to Economic Growth in Ethiopia
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Date
2024-06-27
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A.A.U
Abstract
This study examines a contribution of banking sector development on growth of economy in Ethiopia. It makes used time series data of all banks from 1991-2022. The banking sector system mobilized resources in deposit, borrowing, and loan collection, reaching Birr 626.6 billion. Private Banks increased their share in deposit mobilization to 47.7%, with CBE accounting for 53.3%. Reserve mobilization through borrowing remained insignificant. The banking sector's outstanding credit grew by 23.9% to Birr 1.6 trillion, with the number of banks opening 1600 new branches in 2022. Depending on the nature of a banking sector development indicators the researcher selects five independent variables such as Bank size (Asset), Deposit, Loan to deposit ratio, return on asset, Capital accumulations and some Control variables i.e. Export, Investment, Money supply, inflation rate and Labor are employed in the thesis. Dependent variable is a proxy of economic expansion (RGDP). A unit root test satisfies the stationarity of data in the model and Granger causality test has demonstrated there are Unidirectional causes, meaning that all independent variables influence the dependent variable in one direction. The regression results of independent variable coefficients are to have a positive reaction to a dependent variable or to a model of economic growth RGDP. In the same way, within the specified period of time, there was a negative contribution from Loan to deposit ratio, labor and inflation on economic growth. Banking sector is positively contributes to overall economic growth in Ethiopia.