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Table 3. 
Robustness Check Dependent variable: economic growth rate (
Financial development measureM2/GDPPrivate credit/GDPPrivate credit/GDPPrivate credit/GDP
RER construction sourcePWT 8.0IMFPWT 8.0 5-year-averagedPWT 8.0
Datapanel (1)panel (2)panel (3)cross-section (4)
Real GDP per workert−1 −0.060* −0.047* −0.099* −0.013* 
 (−10.91) (−6.66) (−15.71) (−8.15) 
Underval 0.081* 0.066* 0.047** 0.020*** 
 (3.32) (5.81) (2.34) (1.97) 
Fin devt −0.016* −0.011* 0.002 0.001 
 (−2.94) (−2.70) (0.60) (0.34) 
Underval × fin devt −0.021* −0.020* −0.010** −0.007*** 
 (−3.09) (−5.42) (−2.31) (−1.72) 
Dependency ratiot−1 −0.000 0.000 −0.000 −0.001* 
 (−1.60) (1.01) (−1.32) (−6.75) 
Trade opennesst−1 0.010* 0.045* 0.014** 0.006** 
 (3.18) (5.32) (2.26) (2.49) 
Govt. expenditure sharet−1 −0.065* −0.022 −0.054** −0.029*** 
 (−3.00) (−0.76) (−2.08) (−1.83) 
Investment sharet−1 0.037*** 0.013 0.037 0.059* 
 (1.65) (0.43) (1.23) (3.23) 
Fixed effects     
Economy fixed effect Yes Yes Yes  
Year fixed effect Yes Yes Yes  
Observations 3,682 1,960 677 127 
R2 0.090 0.110 0.388 0.488 
Financial development measureM2/GDPPrivate credit/GDPPrivate credit/GDPPrivate credit/GDP
RER construction sourcePWT 8.0IMFPWT 8.0 5-year-averagedPWT 8.0
Datapanel (1)panel (2)panel (3)cross-section (4)
Real GDP per workert−1 −0.060* −0.047* −0.099* −0.013* 
 (−10.91) (−6.66) (−15.71) (−8.15) 
Underval 0.081* 0.066* 0.047** 0.020*** 
 (3.32) (5.81) (2.34) (1.97) 
Fin devt −0.016* −0.011* 0.002 0.001 
 (−2.94) (−2.70) (0.60) (0.34) 
Underval × fin devt −0.021* −0.020* −0.010** −0.007*** 
 (−3.09) (−5.42) (−2.31) (−1.72) 
Dependency ratiot−1 −0.000 0.000 −0.000 −0.001* 
 (−1.60) (1.01) (−1.32) (−6.75) 
Trade opennesst−1 0.010* 0.045* 0.014** 0.006** 
 (3.18) (5.32) (2.26) (2.49) 
Govt. expenditure sharet−1 −0.065* −0.022 −0.054** −0.029*** 
 (−3.00) (−0.76) (−2.08) (−1.83) 
Investment sharet−1 0.037*** 0.013 0.037 0.059* 
 (1.65) (0.43) (1.23) (3.23) 
Fixed effects     
Economy fixed effect Yes Yes Yes  
Year fixed effect Yes Yes Yes  
Observations 3,682 1,960 677 127 
R2 0.090 0.110 0.388 0.488 

GDP = gross domestic product, IMF = International Monetary Fund, PWT = Penn World Tables, RER = real effective exchange rate.

Notes:

1. Observations are annual data for the period 1980–2011.

2. The measures of financial development are the same as indicated in the column headings.

3. Both undervaluation and private credit/GDP are in logarithmic form.

4. Panel regressions in columns (1)–(3) include both economy and year fixed effects. Column (4) reports the estimates of cross-sectional data where all of the control variables are averaged over the period 1980–2011 and real GDP per workert−1 refers to the value at the beginning year.

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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