Analyzing the Impacts of the Financial Liberalization Policy on the Development of the Financial Sectors in Ethiopia: An ARDL Modeling Approach

Abstract

The study analyzes the impact of financial reform policy on the development of the financial sector in Ethiopia during the period 1973-2005. Specifically, it investigates whether financial liberalization policy exerts a different effect on the financial sectors development in the short run and long run, whether; there were differences in various financial reform policies. To that end the paper employs persaran’s (2001) bound test to the ARDL model. The finding of the study shows that in the long run financial liberalization policy has positive and statistically significant impact on the development of financial sectors. But in the short run it doesn’t have any impacts on the development of financial sectors. The overall financial reform policy is the most promising financial liberalization policy. The policy implication of the study is that the Ethiopia government should have to fasten the full liberalization of financial sectors to maximize the benefit for the country.

Keywords: Financial Liberalization, Financial Development, ARDL model and bound testing