Effect Of Financial Development On Economic Growth In Ethiopia, Ardl Approach

Abstract

This study is designed to assess the effect of financial development on economic growth in Ethiopia. In its way the study described the effects of broad money supply, private sector credit, human capital, investment, inflation and openness on economic growth in Ethiopia. It assessed the relation between financial development and economic growth in Ethiopia. The study examined the effects of broad money supply and private sector credit on economic growth in Ethiopia. To address these objectives it employed descriptive and inferential statics. This finding confirmed that, existence of correlation between financial development and economic growth. This correlation is explained positively this outcome showed that, all the independent variables broad money supply, private sector credit, human capital, investment, inflation, openness is positively correlated to economic growth in Ethiopia. Accordingly any action targeted to affect economic growth in Ethiopia could be effective if it use these variables positively. An action targeted to affect economic growth in Ethiopia via financial sector development is advised to use private sector credit negatively. Improvement in human capital is the other way to improve economic growth in Ethiopia. The study outcome reported that, human capital is significant at 1%, and it is positively related to economic growth in Ethiopia. It implies that the improvement in education will increases productivity, then increases production and improves economic growth. One of the possible ways to affect economic growth is using investment positively related to economic growth in Ethiopia. The other possible way to improve economic growth in Ethiopia is using openness negatively.