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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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