Role of Commercial Bank of Ethiopia in Fostering Ethiopian Economy

Abstract

The purpose of this paper is to investigate the role of commercial bank of Ethiopia on the Ethiopian economic growth. Earlier studies in this field have argued that a link always exist between the commercial banks and economic growth in every economy. Based on this the study examined the role commercial bank of Ethiopia played on economic growth for a period of 32 years from1981-2012. The researcher used different statistical and econometrical analyses such as Unit root test, Cointegration test, and Granger causality test and regression analysis in order to achieve the objectives of the study. Augmented Dickey Fuller test (ADF) shows the stationary of all variables at first difference. Johansen cointegration test confirms the cointegreration of three variables in trace statistics and two variables in maximum Eigen value test. The Granger-Causality test confirms the bidirectional causal relationship of deposits, reserve and capita, asset and profitability with economic growth. On the other side unidirectional causal relationship exist between investments and loan and advancement in economic growth. Regression results indicate that deposits, investments, asset and reserve and capital have significant positive impact on economic growth of Ethiopia. It is recommended that the policy makers should make policies to enhance the banking sector in Ethiopia because banking sector is significantly contributing in the economic growth of Ethiopia.