The Effect of Financial Liberalization on Economic Development in Ethiopia

Table of Contents

1. INTRODUCTION

1.1. Background of the Study

1.2. Statement of the Problem

1.3 Objectives of the Research

1.3.1 General objective:

1.3.2 Specific objectives:

1.4 Research Hypotheses

1.5 Significance of the study

1.6 Scope and limitations of the study

1.6.1 Scope of the Study

1.6.2 Limitation of the study

1.7 Structure of the study

2. REVIEW OF RELATED LITERATURE

2.1 The Role of Finance on Economic Growth

2.1.1 Supply Leading Hypothesis view

2.1.2 Demand Following Hypothesis view

2.1.3 Bi-directional Causality view

2.1.4 No Causality view

2.2 Financial Repression

2.3 Rationale of Financial Repression

2.4 Types of Financial Repression

2.5 Consequence of Financial Repression

2.6 Financial Liberalization: Views, causes and Approaches

2.7 Liberalization and its Impact on Interest Rates, Savings and Investment

2.8 Effect of Reserve requirement on Credit Availability

2.9 The Role of Securities market on Growth

2.10 Liberalization of the External Account

2.11 The Role of Liberalization in Allocative Efficiency

2.12 Financial Intermediation

2.13 Sequencing of the financial liberalization

2.14 Financial Liberalization and Welfare

2.15 Financial Liberalization and Financial Fragility

2.16 Overview of the Ethiopian economy

2.17. Overview of the Monitory Policy

2.18 Research Gap

3. RESEARCH DESIGN AND METHODOLOGY

3.1 Research design

3.2 Data and sources

3.3 Econometric Model

3.3.1 Financial Sector Widening

3.3.2 Interest Rate, Saving and investment

3.3.3 Economic Growth and industrialization

3.3.4 Financial Development

3.3.5 Efficiency in Resource Allocation

3.3.6 Employment Opportunities

3.3.7 Poverty Alleviation and Redistribution of Income

3.3.8 Financial Sustainability

3.4 Estimation method

4. DATA ANALYSIS AND DISCUSSION

4.1 Construction of the Financial Liberalization Index (FLI)

4.2 The Financial Liberalization Index equation

4.3 Unit Root test

4.4 Model Stability and Diagnostic Test

4.5 Financial sector Widening

4.6 Interest rate saving and investment

4.7 Economic growth and industrial development

4.8 Financial Deepening

4.9 Efficiency of Resource Allocation

4.10 Employment Opportunity

4.11 Poverty Alleviation and Distribution of Income

4.12 Financial Sustainability

4.13 Nexus between finance and economic growth

5. CONCLUSION AND FUTURE RESEARCH DIRECTION

5.1. Empirical finding and Policy implications

5.2 Direction for Future Research

Research Objectives and Themes

This study aims to empirically examine the impact of financial liberalization on economic development in Ethiopia over the period 1984-2014, utilizing the ARDL approach to Co-integration and an Error Correction Model to analyze long-run and short-run relationships.

• Construction and analysis of a Financial Liberalization Index (FLI) for Ethiopia.
• Investigation of the impact of liberalization measures on savings, investment, and economic growth.
• Evaluation of the influence of financial reform on industrial development and resource allocation efficiency.
• Assessment of the effects of financial liberalization on employment opportunities, poverty alleviation, and income distribution.
• Analysis of financial stability and the nexus between financial development and economic growth.

Excerpt from the Book

Summary of Chapters

CHAPTER ONE: Provides an introduction, problem statement, and objectives, establishing the research context regarding financial liberalization in Ethiopia.

CHAPTER TWO: Reviews theoretical and empirical literature on financial liberalization, financial repression, and their impacts on growth, savings, and investment.

CHAPTER THREE: Outlines the research design, methodology, and econometric models used for empirical testing.

CHAPTER FOUR: Presents the analysis and discussion of findings, including the construction of the Financial Liberalization Index and ARDL estimation results.

CHAPTER FIVE: Summarizes the major empirical findings, draws conclusions, provides policy implications, and suggests future research directions.

Keywords

Financial liberalization, Financial liberalization index, Economic development, Ethiopia, ARDL, Financial repression, Banking sector, Economic growth, Investment, Savings, Industrial development, Resource allocation, Financial stability, Monetary policy, Financial reform

Frequently Asked Questions

What is the core subject of this research?

The research focuses on the impact of financial liberalization on various facets of the Ethiopian economy, including economic growth, financial development, and stability, over the period from 1984 to 2014.

What are the primary themes addressed?

The study examines financial sector widening, the efficiency of resource allocation, poverty alleviation, income distribution, and the impact of interest rate changes on savings and investment.

What is the main objective of the paper?

The primary goal is to empirically evaluate how financial liberalization measures have affected the national economy, distribution, and stability, specifically by establishing a Financial Liberalization Index for Ethiopia.

Which scientific methodology is employed?

The study adopts an explanatory, quantitative research approach, utilizing the Autoregressive Distributed Lag (ARDL) model to investigate co-integration and causal relationships between variables.

What topics are discussed in the main body?

The main sections cover the literature review on financial liberalization, methodology and econometric modeling, and the detailed data analysis regarding the impact of financial policies on specific economic indicators.

Which keywords characterize this work?

Key terms include financial liberalization, Financial liberalization index, Ethiopia, ARDL, economic development, financial repression, and financial stability.

How is the Financial Liberalization Index (FLI) calculated?

The FLI is constructed using principal component analysis, incorporating six key measures: interest rate deregulation, removal of entry barriers, reduction in reserve requirements, easing in credit controls, implementation of prudential rules, and external account liberalization.

What is the conclusion regarding the demand-leading hypothesis in Ethiopia?

The study's results indicate that causality runs from economic growth to financial development, thereby supporting the demand-leading hypothesis rather than the supply-leading one during the studied period.