The Impact of Bank Saving and Bank Credit on Economic Growth in Ethiopia: An ARDL Co-integration Approach

Economic growth is the common goal of all nations in the world. Economic growth is defined as a positive change in the national income or the level of production of goods and services by a country over a given period of time. The general objective of this study is to investigate the impact of bank savings and bank credits on Ethiopias economic growth over the period 1970/71-2014/15. The ARDL Approach to Co-integration and Error Correction Model are applied in order to investigate the long-run and short run impact. The finding of the Bounds test shows that there is a stable long run relationship between independent variables and dependent variable. The long run economic growth regression result indicates that human capital, labour force, private domestic credit, terms of trade and export have positive and significant impact on economic growth of Ethiopia. However, the result shows that gross domestic saving and gross capital formation have an insignificant positive impact on economic growth in Ethiopia. Finally, the study recommended that to make domestic saving is important to maintain sustainable economic growth in Ethiopia, the government should increase the amount of domestic saving. To do so, the government should focus to increase broad money, real interest rate and life expectancy that are important determinants to increase domestic saving.