Linkages Between Financial Market Development and Economic Growth in Ethiopia

Abstract

In this study we consider the link between financial development and economic growth from 1971 to 2009 in Ethiopia. Most theoretical and empirical works in the literature suggest that deeper financial market promotes economic growth. We take this hypothesis to the test of conducting descriptive and empirical study using Ethiopia’s data. In the empirical analysis we estimate an investment equation applying the Stock Watson Dynamic OLS procedure. The result suggests that the financial development indicator positively and significantly explains investment suggesting that financial development and economic growth have direct and strong relationship. The argument that financial development and economic growth have positive linkages is supported by results of both descriptive and empirical analysis. But the argument that financial development determines economic growth appears to be inconclusive. The Granger causality test result suggests bidirectional influence between financial development and economic growth.

Keywords: Financial,Market,Development,Growth

DOI: 10.7176/JEP/10-22-01

Publication date: August 31^st 2019