The Relationship Between Bank Sector Development And Economic Growth The Case Of Ethiopia

study examines the short run and long run relationship between bank sector developmentrnand economic growth in Ethiopia. It covers the annually time series data from 1981-2018 and itrnused Vector Error correction Models for estimation technique and Granger Causality test checkrnthe direction of causality. The finding supports that there is no significant relationship betweenrnbank sector development and economic growth in short run, but in long run bank sectorrndevelopment has significant negative effect on economic growth. This result is different fromrntheoretical expectation, but it turns out the current situations and inefficiency of banking sectorrnin providing loans to private sector. This is evidenced by the State-owned banks have on averagernof 46 percent of total loan disbursed by banking industry in the year 2014/15-2018/19. Thernganger causality result shows unidirectional causality from bank sector development torneconomic growth. It recommends to the government to increase the monitoring and supervisorrnrole of monetary authority (National Bank of Ethiopian), should liberalize the sector, creaternfavorable banking environment to bring competition between them.

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