The Nexus Between Financial Development And Economic Growth In Ethiopia

The paper examined the empirical relationship between economic growth and financialrndevelopment in Ethiopia over the period 1980–2014. The long-run and short-run parametersrnwere estimated with a use of autoregressive distributed lag (ARDL) bounds testing approachrnfor co integration analysis. To determine the direction of causality, Granger causalityrnanalysis was done. Empirical findings indicate,there is long-run associationbetweenrneconomic growth and proxy of financial deepening, broad money and private sector creditrnwhile proxy of financial widening, trade openness has positive significant relationship withrneconomic growth but financial liberalization has negative significant association withrneconomic growth. The overall result indicates economic growth has a significant positiverneffect on financial development. The magnitude of the ECT coefficient is -0.8545 justifiedrnabout 85% of the disequilibrium annually converge towards long run equilibrium in thernfollowing year. The Granger causality testis consistent with the co-integration resultrnindicating uni-directional causality between financial development and economic growth inrnEthiopia for the period under study.The result supports demand following hypotheses;meansrnthat economic growth is leading to the financial sector development in Ethiopia. Hence,rnconfirm the heavy hand of the government in the financial sector.rnKeywords: financial development, economic growth, ARDL bounds test, cointegration,rngranger causality

Get Full Work

Report copyright infringement or plagiarism