The Effect of Banking Sector Development on Economic Growth. Empirical Analysis from Ethiopian Economy Final

Table of Contents

CHAPTER ONE

INTRODUCTION

1.1.Background of the Study

1.2.Statement of the Problem

1.3.Objectives of the Study

1.4.Key Research Questions

1.5.Research Hypothesis

1.6.Significance of the Study

1.7.Scope of the Study

1.8.Limitations of the Study

1.9.Organization of the Study

CHAPTER TWO

LITERATURE REVIEW

2.1.Conceptual Review

2.2.Theoretical Literature

2.2.1. Economic Growth Models

2.2.2.The Neo-Classical Growth Model

2.2.3.Endogenous Growth Models

2.2.4.Theory of Financial Intermediation

2.3.Empirical Literatures

2.5.Conceptual Framework

CHAPTER THREE

RESEARCH METHODOLOGY

3.1.Research Design

3.2.Description of Variables

3.3.Model Specification and Data

3.4.Methodology of Data Analysis

3.4.1.Unit Root Test

3.4.2.The Autoregressive Distributed Lag Model (ARDL)

3.4.3.Granger Causality Test

3.5.Types and Sources of Data

3.6.Data Processing and analysis

CHAPTER FOUR

DATA ANALYSIS AND PRESENTATION

4.1.Descriptive Analysis

4.2.Unit Root Test

4.3.Co-integration Analysis

4.4.Estimation of the Long-Run Relationship

4.5.Estimation of Short-Run Parameters

4.6.Diagnostic Test and Model Stability

4.6.1.Test of Parameter Stability

4.6.2.Normality Test

4.6.3.Heteroscedasticity Tests

4.7.Granger Causality Test

CHAPTER FIVE

CONCLUSIONS AND RECOMMENDATION

5.1.Conclusion

5.2.Recommendation

Objectives and Topics

This study aims to examine the empirical relationship between banking sector development and economic growth in Ethiopia for the period 1987 to 2019, utilizing the ARDL bounds testing approach to determine both long-run and short-run dynamics and test the validity of supply-leading versus demand-following hypotheses.

• Banking sector development and its role in economic growth
• Empirical evaluation of supply-leading and demand-following theories
• Application of the Autoregressive Distributed Lag (ARDL) model
• Impact of domestic credit, broad money supply, and private credit on GDP
• Analysis of causal relationships using Granger causality tests

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Summary of Chapters

CHAPTER ONE: This chapter provides the foundation for the study, including background, the problem statement, objectives, research questions, and scope regarding the impact of banking development in Ethiopia.

CHAPTER TWO: This section reviews relevant theoretical frameworks and empirical literature concerning financial intermediation, economic growth models, and the supply-leading versus demand-following hypotheses.

CHAPTER THREE: This chapter outlines the quantitative methodology, specifically the ARDL model, data sources, and variables used to investigate the causal link between the banking sector and economic output.

CHAPTER FOUR: This chapter presents the empirical findings, including descriptive statistics, unit root tests, cointegration analysis, and diagnostic tests for model stability.

CHAPTER FIVE: This chapter summarizes the empirical conclusions and provides policy recommendations for enhancing banking sector efficiency and economic growth in Ethiopia.

Keywords

banking sector development, economic growth, ARDL bounds test, cointegration, unit root test, Granger causality, supply-leading hypothesis, demand-following hypothesis, financial intermediation, real GDP, domestic credit, Ethiopia, financial development, time series analysis, banking policy

Frequently Asked Questions

What is the core focus of this thesis?

The thesis investigates the impact of banking sector development on the economic growth of Ethiopia from 1987 to 2019, specifically analyzing the causal relationship between financial institution activity and GDP growth.

What are the primary themes examined?

The study centers on financial deepening, banking efficiency, the supply-leading theory (finance driving growth) versus the demand-following theory (growth driving finance), and the impact of banking reforms.

What is the main objective of the research?

The main objective is to empirically determine if a long-run relationship exists between banking sector indicators (such as domestic credit, private credit, and broad money supply) and Ethiopia's economic growth, and to identify the direction of causality.

Which scientific methodology is employed?

The researcher employs the Autoregressive Distributed Lag (ARDL) model, also known as the bounds testing approach, which is particularly robust for small-sample time series data.

What does the main body cover?

The main body covers the theoretical framework, a literature review of global and regional empirical studies, the specification of the ARDL models, and detailed diagnostic tests of the model's validity and stability.

Which keywords categorize this work?

Key terms include bank sector development, economic growth, ARDL bounds test, cointegration, unit root test, and supply-leading hypothesis.

What significance do the ARDL bounds tests have for this research?

These tests are critical because they allow the researcher to examine long-run relationships among variables even when they are integrated at different levels, which is a common feature of macroeconomic time series data in developing economies.

How does this study differ from previous research in Ethiopia?

Unlike previous studies, this research specifically isolates the banking sector as the focus, uses updated data up to 2019, and applies the ARDL approach to address endogeneity and short-run/long-run dynamics comprehensively.