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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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