Bank Credit Financing and Manufacturing Sector Performance The Case of Commercial Bank of Ethiopia
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Date
2015-10
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Addis Ababa University
Abstract
The idea of banks financing the private sector as an engine of economic growth has a long
history. The long-held belief of positive relationship between credit financing and manufacture
sector growth has prompted to be a principal component of policy advice in many developing
countries. However, it is still an issue of high debate between developed and developing nations
governments and policy makers. Nowadays, many empirical studies confirm the existence of
strong and positive link between credit financing and economic growth in general and
manufacturing sector in particular while few found significant negative relationship. Thus, the
long-run and short-run impact of credit financing on manufacturing sector performance is
analyzed using Johansson method of co-integration approach and Vector Autoregressive
Model (VARM) based on annual data for the period 1974/75-2013/14. The results suggest the
existence of significant positive impact and insignificant negative impact of trade credit
financing on manufacturing sector growth in the long and short-run respectively. As a result, an
evidence for strategic financing of infant domestic manufacturing industries meant to foster
economic growth of the nation has been inferred.
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Business Adminstration