The Relationship Between Commercial Banks Development Economic And Growth In Ethiopia

The central objective of the study to empirically investigate the impact of commercial banks’rndevelopment in the Ethiopian economic growth. To undertake this study, six explanatoryrnvariables were considered namely deposit, loan and advances, assets, government expenditure,rnexport and inflation rate. The first three were indicators of development of commercial banksrnand considered as main independent variables whereas the last three were control variables. Thernpresent research has adopted mixed research approaches. Therefore, the study used bothrnsecondary and primary sources of data. The current study considers total population of eighteenrncommercial banks, which are currently operating in Ethiopian banking industry. Of the totalrnpopulation eight commercial banks were selected using purposive/ deliberate samplingrntechniques. For this study unit root tests, co integration and granger causality tests werernconducted. Thus, the study w used both Augmented Dickey Fuller (ADF) test and Philip Perronrn(PP) unit root test. The result suggested that except RGDP and ASSET all variables werernstationary at level whereas when they are first difference all variables were stationary. The studyrnhas conducted Johansson co integration test to know whether variables have long runrnassociation ship so the result indicated a long run relationship among variables. Moreover, thernstudy conducted granger causality test to know causality among variables and found that depositrnhas granger cause economic growth, economic growth granger cause loan and advances and norncasual relationship is found among economic growth and asset. The study adopted differentrnanalysis techniques include descriptive statistics and multivariate regression analysis. The studyrnfound that a positive and significant relationship among economic growth, deposit and loan andrnadvances whereas negative and significant association ship between economic growth and bankrnsize i.e. asset. Furthermore, in relation to control variables both inflation and exports have beenrnpositively and significantly associated with economic growth while the study has found negativernand significant relationship between economic growth and government expenditures. Finally, tornmaintain and sustain economic growth all stakeholders to whom concerned should have to pay arnparamount attention for commercial banks considering their influence in the overall economicrnprospects. In addition, wistful government expenditures has to be eradicated, exports has to bernencouraged and target inflation need to be maintain in order to realize dramatic economicrngrowth in the country Ethiopia.rnwasrnKey words: Ethiopia, commercial banks, economic growth, commercial banks’ dev

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