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Table 2. 
Effect of Undervaluation on Economic Growth Rate Dependent variable: economic growth rate ()
(1) fin_devt = private credit/GDP(2) fin_devt = private credit/GDP(3) fin_devt = 1(private credit/GDP > 25th percentile)(4) fin_devt = 1(private credit/GDP > 50th percentile)(5) fin_devt = 1(private credit/GDP > 75th percentile)
Real GDP per workert−1 −0.063* −0.064* −0.063* −0.065* −0.065* 
 (−11.56) (−11.68) (−12.11) (−12.30) (−12.35) 
Underval 0.005 0.030*** 0.008 0.015** 0.011 
 (0.85) (1.95) (1.41) (2.29) (1.43) 
Fin devt 0.002 0.002 −0.014* −0.006 0.003 
 (0.63) (0.48) (−3.23) (−1.44) (0.59) 
Underval * fin devt  −0.009*** −0.031* −0.032* −0.016*** 
  (−1.76) (−3.33) (−3.74) (−1.80) 
Dependency ratiot−1 −0.000 −0.000 −0.000 −0.000*** −0.000 
 (−1.22) (−1.44) (−1.52) (−1.81) (−1.51) 
Trade opennesst−1 0.010* 0.010* 0.010* 0.011* 0.010* 
 (3.19) (3.19) (3.18) (3.35) (3.20) 
Govt. expenditure sharet−1 −0.069* −0.076* −0.064* −0.072* −0.074* 
 (−3.23) (−3.50) (−3.16) (−3.55) (−3.59) 
Investment sharet−1 0.041*** 0.038*** 0.032 0.029 0.026 
 (1.85) (1.70) (1.52) (1.40) (1.26) 
Fixed effects      
Economy fixed effect Yes Yes Yes Yes Yes 
Year fixed effect Yes Yes Yes Yes Yes 
Observations 4,019 4,019 4,019 4,019 4,019 
R2 0.084 0.084 0.087 0.086 0.083 
(1) fin_devt = private credit/GDP(2) fin_devt = private credit/GDP(3) fin_devt = 1(private credit/GDP > 25th percentile)(4) fin_devt = 1(private credit/GDP > 50th percentile)(5) fin_devt = 1(private credit/GDP > 75th percentile)
Real GDP per workert−1 −0.063* −0.064* −0.063* −0.065* −0.065* 
 (−11.56) (−11.68) (−12.11) (−12.30) (−12.35) 
Underval 0.005 0.030*** 0.008 0.015** 0.011 
 (0.85) (1.95) (1.41) (2.29) (1.43) 
Fin devt 0.002 0.002 −0.014* −0.006 0.003 
 (0.63) (0.48) (−3.23) (−1.44) (0.59) 
Underval * fin devt  −0.009*** −0.031* −0.032* −0.016*** 
  (−1.76) (−3.33) (−3.74) (−1.80) 
Dependency ratiot−1 −0.000 −0.000 −0.000 −0.000*** −0.000 
 (−1.22) (−1.44) (−1.52) (−1.81) (−1.51) 
Trade opennesst−1 0.010* 0.010* 0.010* 0.011* 0.010* 
 (3.19) (3.19) (3.18) (3.35) (3.20) 
Govt. expenditure sharet−1 −0.069* −0.076* −0.064* −0.072* −0.074* 
 (−3.23) (−3.50) (−3.16) (−3.55) (−3.59) 
Investment sharet−1 0.041*** 0.038*** 0.032 0.029 0.026 
 (1.85) (1.70) (1.52) (1.40) (1.26) 
Fixed effects      
Economy fixed effect Yes Yes Yes Yes Yes 
Year fixed effect Yes Yes Yes Yes Yes 
Observations 4,019 4,019 4,019 4,019 4,019 
R2 0.084 0.084 0.087 0.086 0.083 

GDP = gross domestic product.

Notes:

1. All observations are annual data for the period 1980–2011.

2. The measure of financial development is private credit as a percentage of GDP.

3. Undervaluation and private credit/GDP are in logarithmic form.

4. All regressions include a constant term and economy and year fixed effects, and control for the main effects of all three shocks.

5. t-statistics are in parenthesis.

6. *** = 10% level of statistical significance, ** = 5% level of statistical significance, * = 1% level of statistical significance.

Sources: Authors’ calculations based on World Bank. “World Development Indicators.” http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators; Penn World Tables 8.0. http://www.rug.nl/research/ggdc/data/pwt/

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