Page 18 - Azerbaijan State University of Economics
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THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.80, # 2, 2023, pp. 14-27
′
, = 0 + 1 + + Ý + µ ………………… (1)
Where the dependent variable is RGDP it stands for real gross domestic product per
capita, i and t subscripts defined as i=1, 2...,8 war-torn countries and t=1970...,2007.
Then, α0 denotes the intercept; β, δ, and γ are the vectors of coefficients; FD it is
financial development measures (domestic credit provided to private sector % GDP);
M is monetary control variables (official exchange rate, money supply and lending
interest rate); X it is a set of other control variables (Gross national expenditure,
Central government debt, Domestic saving, Trade, Foreign direct investment, Aid)
and µit captures an error term.
Given that the primary purpose is to investigate the impact of financial development
on economic growth through a comparative approach before/during/after war, the
study uses in the above model three dummy variables: one for the post-war period 10
years after war, one for the pre-war period 10 years before the war, and one for the
war period.
The Hausman test & Breusch-Pagan Lagrange multiplier was used to decide between
fixed effects (FE), random effects (RE) and pooled OLS estimates. Under the full set
of random effects assumptions, the results from the Hausman test suggest that the RE
assumption accepted; therefore, we run Breusch-Pagan Lagrange multiplier decide
RE and Pooled OLS, the estimation result suggest that Pooled OLS Method is proper
for this study.
An increase in the independent variable "X" is associated with an increase/decrease
in the dependent variable "Y", while Z is a dummy variable equal to one if the required
condition met, and zero otherwise (if Z is not the condition). To see this, we present
the following model.
= 0 + 1 + 2 + 3 ∗ − + 4 ∗
+ 5 ∗ − + ……………………… (2)
RGDP = annual growth of real GDP per capita
Z = set of control variables.
FD = financial development proxied by domestic credit provided to the private sector
% GDP.
It is obvious to see that the model presented in the above Eq. captures the effect of
one unit change in FD on RGDPG
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