Effects of Financial Development on Economic ...

Effects of Financial Development on Economic Growth in Ethiopia: Ardl Bounds Approach

Author Name : Bealu Tukela

ABSTRACT

Finance-growth nexus is one of the main issues in the majoreconomies of the world.This study aimed at examiningeffectsfinancial development on economic growth in Ethiopia using annual time series data from 1980 to 2019. Stationarity tests were conducted using the Augmented Dicker Fuller (ADF) test statistic. The Autoregressive Distributed Lag (ARDL) and Bounds test for co-integration was conducted. The Granger Causality technique was employed. The findings reveal that financial sector development causes economic growth. Inflation had a negative impact on economic growth in line with apriori expectation.Credit to private sector and savings had a positive impact on economic growth. It is recommended that monetary policy makers ensure all stakeholders adhere strictly to laid down goals to guarantee financial development. Government should implement policies that promote financial sector development which will result in investment and economic growth.

Key Words: ADF, ARDL,Financial Development, Granger Causality, Time Series.