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THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.80, # 2, 2023, pp. 14-27
THE ROLE OF FINANCIAL DEVELOPMENT IN POST-WAR
ECONOMIC GROWTH
GIRMA, ABEBE GULE
Woldia University, College of Business and Economics, Woldia, Ethiopia
Khazar University, School of Economics and Management, Baku, Azerbaijan
E-mail: ggirmaabebegule@gmail.com
Received: August 25; accepted December 20, 2023; published online December 25, 2023
ABSTRACT
Post-war countries need to achieve economic recovery and reduce the risk of future
escalation. We focus on the economic recovery and investigate the role of the sector.
We specifically examine the impact of financial development on post-war economic
growth using Pooled OLS and multiplicative dummy variable regression technique
based on a panel dataset of eight recent war-torn countries in the same era from 1970
to 2007 obtained from world bank data base. Our results show that financial
development significantly and positively affects postwar economic growth, and this
effect is greater than the effect during per-war and war periods. We also confirmed
that other control variables such as trade openness are the only variable that drives
economic growth negatively in both post war, war, and prewar periods. The lending
interest rate affects postwar and war period economic growth negatively. The central
government debt drives post and prewar economic growth negatively. The official
exchange rate, and domestic savings rates show a positive significant impact on the
economic growth of post war and war periods, respectively. Our study result also
shows that the gross national expenditure and foreign direct investment shows a
positive significant relationship with prewar economic growth.
Keywords: Financial development, economic growth, post-war, pooled OLS,
multiplicative dummy regresssion.
Jel Classification: B26, F36, F65
INTRODUCTION
Post-war countries face significant challenges. Destruction of physical and human
capital, weakening state functions, and economic disturbances impede post-war
economic growth. Collier et al. (2008) argue that post-war countries should focus on
achieving sustainable economic recovery and preventing future hostilities. Post-war
reconstruction involves complex relationship among various state institutions and
requires varied interventions both at local and national level (Barakat,. and Zyck,
2009) International aid and support from key allies play a significant role.
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