Abstract:
Financial development and economic growth go hand in hand. For instance, banking industry
has expanded along with the economy, providing more chances for deposit and loan services. As
banking industry has expanded, more people now have access to credit and financial services.
But there were problems with providing timely, inexpensive, and accessible credit to the private
sectors that generate jobs in Ethiopia's banking industry. The objective of the study was
examining the link between Ethiopia's financial development and economic growth. The study
was conducted using a method that combined quantitative and descriptive research. Secondary
long-term data from 1984 to 2021 was used. The examination of time series data was combined
with a multivariate regression analysis and Vector error correction model estimation. stationary
tests and co-integration tests were conducted. The results showed a positive correlation between
financial development indicators, such as bank branch network, credit, and investment capital,
and economic growth, and a negative correlation with bank lending interest rates. Additionally,
there was little correlation between financial development and economic growth in the short
term, but there was a significant correlation in the long term. These indicated access to credit
and increased investment capital were possible by the expansion of bank branch networks for
long-term job possibilities. The findings of the study suggested that policy intervention should be
kept to a minimum while financial liberalization is permitted through joint ventures between
domestic and foreign banks, financial intermediary services to be improved, inclusive credit
policy to be maintained, financing for investments that generate more jobs is made more
accessible.
