The Effect Of The Banking Sector On The Ethiopian Economy An Empirical Analysis

The main objective of the study was to examine empirically the effect of banking sector on thernreal economy in Ethiopia over the period 1980-2015. The ARDL approach to Co-integration andrnError Correction Model are employed to investigate both the long run and short runrnrelationships. Goodness of fit of the estimated equation, Stability of the estimated model,rnBreusch-Godfrey Serial Correlation LM Test, Heteroskedasticity test: Breusch-Pagan-Godfreyrnand Normality Test has been also conducted and the model did not experience any problem. ThernBounds test showed there is a stable long run relationship between real GDP, private sectorrncredit, domestic credit to the government. Gross capital formation and regime change/systemrnchange. The estimated ARDL model has confirmed significantly positive effect of proxies on realrnGDP. However, private sector credit to GDP(%) has shown negative contribution to real GDP.rnThe short run, coefficient of error correction term justified about 28 percent of disequilibriumrnannually converge towards long run equilibrium in the current year.

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