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Girma, Abebe Gule: The Role of Financial Development in Post-War Economic Growth

                    Our regression analysis confirmed the insignificant relationship between the prewar
                    financial development dummy and economic growth. In column 5 and 6, we show
                    that the prewar financial development dummy has a statistically negative significant
                    impact on economic growth.

                    Curiously, the regression analysis results in column 6 and 7, reveal that postwar period
                    financial development dummy promotes economic growth positively. Additionally,
                    gross national expenditure, domestic savings, and foreign direct investment positively
                    affect economic growth in both periods, while trade openness drives negatively. The
                    lending  interest  rate  affects  prewar  and  post  war  economic  growth  negatively,
                    however its impact during war period economic growth is insignificant.

                    CONCLUSION
                    The  main  objective  of  this  study  was  to  see  the  role  of  financial  development  in
                    postwar economic growth based on eight recent war-torn countries panel data that
                    cover the prewar and postwar period ranging from 1970 to 2007. The study period
                    covers the data of the most recent 10 years data after war. Also, to see if there is
                    significant impact difference in pre and post war period the study includes the most
                    recent  10  years  prewar  data.  After  checking  the  best  models  for  panel  regression
                    analysis, the study employed the pooled OLS regression technique. The results of the
                    pooled OLS regression analysis prove that financial development proxied by domestic
                    credit provides to private sector % GDP helps to drive postwar economic growth
                    positively; however, its impact during the prewar and war period has been shown to
                    be insignificant. Furthermore, to verify the robustness of the study result, this study
                    also  uses  the  dummy  multiplicative  regression  analysis  technique.  The  regression
                    result shows that the pre-war financial development dummy showed an insignificant
                    impact on economic growth. However, the war period financial development dummy
                    affects  economic  growth  negatively,  while  the  post-war  period  used  as  a  dummy
                    variable,  financial  development  drives  postwar  economic  growth  positively.  In
                    addition, gross national expenditure, domestic savings, and foreign direct investment
                    positively  affect  economic  growth  in  both  periods,  while  trade  openness  drives
                    negatively. The lending interest rate affects prewar and post war economic growth
                    negatively, however its impact during war period economic growth is insignificant.
                    Finally,  this  study  recommends  for  further  investigation  to  replicate  this  study  at
                    individual country level and include other measures of financial development proxy
                    variables.








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