The Link between Financial Development and Economic Growth in Ethiopia
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Date
2012-06
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A.A.U
Abstract
The Link Between Financial Development and Economic Growth in Ethiopia
Roman Tesfaye
Addis Ababa University, 2012
The paper examines whether a long-run relationship between financial development and
economic growth exist in Ethiopia, It employs Co-integrated Vector Autoregressive
(CV AR) approach to asses how the financial sector contributes to growth, It further used
the granger causality test so as to find the direction of causal ity between financial
development and economic growth, Impulse response and variance decomposition tests
are also applied so as to see the interaction between financial development and economic
growth, The study utilized time-series data of Ethiopia over the period 1980-2010,
The findings support the existence ofa uni-directional causality from economic growth to
financial development. The emperical evidence, in addition, shows the presence of
positive and significant long-run relationship between financial development and
economic growth and an insignificant effect in the short-run, The results of Impulse
response and variance decompositions also indicate the permanent effect of financial
development on economic growth, The policy implication is that long-run policies of
financial development are believed to provide significant effect on economic growth
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Keywords
Development and economic, Growth