BANKING SECTORS DEVELOPMENT AND ECONOMIC GROWTH IN ETHIOPIA: TIME SERIES ANALYSIS

Abstract

The purpose of this thesis is to investigate the e ect of banking development on eco- nomic growth for Ethiopia. Using Autoregressive distributed lag, the relationship between banking development and economic growth is investigated. The banking sector indicator used in this study includes bank credit to private sector (PSC), bank credit to deposit ratio (CDR) and banking size (BS). Also, some macroeco- nomic control variable such as private consumption (Pcons) and Trade openness (TO) were used. The investigation of the principal indicator of banking develop- ment indicator have shown little di erences. Results from ARDL model con rms that in the presence of other macroeconomic control variables, banking development indicator such as CDR and PSC are positively signi cantly determining economic growth. However, when banking sector development indicators entered to the model individually, only PSC is found to have positively and signi cantly determining economic growth after its rst lag. Overall, although the e ect is dependent on the banking indicator used, the evidence suggest that banking sector development is contributing positively to Ethiopian economic growth and. Hence, policies to encourage further development in banking sector is useful in improving Ethiopian economy.