The Impact Of Financial Liberalization On The Economic Growth Of Ethiopia A Panel Data Approach

This paper attempts to evaluate the impact of financial liberalization onrnthe banking sector performance and economic growth of Ethiopia ,rnusing annual data covering the period 2004-2011. The Housman test forrnthe random effects regressions is imposed by the RE estimation arernvalid and the repressors are, uncorrelated with the bank random effectrnestimator, consistent and efficient. The findings of the study showed thatrnthere is a small performance gap between private and public banks.rnrnTherefore, if foreign banks were permitted to enter the Ethiopianrnbanking system the result might be the narrowing of the efficiency gap,rnmeasured by cost-asset ratio, the interest-rate spread and ROA betweenrnpublic and private banks. However, this might not be creating positiverneffects on Ethiopia's national economic growth. Because oreign banksrnwith more capital and more experience will take over the domesticrnfinancial sector, which is presently, lead by banks that are too small,rnyoung and inexperienced to compete.

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