THE CONTRIBUTION OF BANKING SECTORS DEVELOPMENT TO ECONOMIC GROWTH IN ETHIOPIA

Abstract

In this study, to investigate the impact of banks ‘sector development in the Ethiopian economic growth. Therefore, the study used secondary sources of data. It employs Vector Autoregressive (VAR) approach to asses the impact of bank sector development contributes to economic growth. It further used the granger causality test so as to find the direction of causality between banks sector development and economic growth and unit root test conducted. Thus, the study Im-pesaran-shin root test was applied. The result suggested that all variables were non stationary at level except loan and advance.whereas when they are first difference all variables were stationary. Moreover, the study conducted granger causality test to know causality among variables and found that loan and advance has granger cause economic growth, no casual relationship is found among economic growth and other remaining variable. The study adopted different analysis techniques include descriptive statistics and regression analysis. The study found that a positive and in significant relationship among economic growth and deposit and loan and advance.Whereas negative and in significant association ship between economic growth bank size i.e. asset. Furthermore, in relation to control variable the study has found positive and significant relationship between economic growth and government expenditures. Finally, to maintain and sustain economic growth all stakeholders to whom concerned should have to pay a paramount attention for banks considering their influence in the overall economic prospects.