Bank Credit Financing And Manufacturing Sector Performance The Case Of Commercial Bank Of Ethiopia

The idea of banks financing the private sector as an engine of economic growth has a longrnhistory. The long-held belief of positive relationship between credit financing and manufacturernsector growth has prompted to be a principal component of policy advice in many developingrncountries. However, it is still an issue of high debate between developed and developing nationsrngovernments and policy makers. Nowadays, many empirical studies confirm the existence ofrnstrong and positive link between credit financing and economic growth in general andrnmanufacturing sector in particular while few found significant negative relationship. Thus, thernlong-run and short-run impact of credit financing on manufacturing sector performance isrnanalyzed using Johansson method of co-integration approach and Vector AutoregressivernModel (VARM) based on annual data for the period 1974/75-2013/14. The results suggest thernexistence of significant positive impact and insignificant negative impact of trade creditrnfinancing on manufacturing sector growth in the long and short-run respectively. As a result, anrnevidence for strategic financing of infant domestic manufacturing industries meant to fosterrneconomic growth of the nation has been inferred.

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