This chapter statistically assesses the factional model in two ways. The first statistical model tests the impact of the two types of factions on provincial lending. A bedrock of this work is that membership composition of factions affects their preference for financial policies. Whereas generalist factions with substantial membership at provincial governments strive to increase monetary disbursements to the provinces, technocratic factions with members primarily in the central government have little incentive to do likewise. This starting point is not taken as given and is tested empirically. Thus, the first model examines whether factional ties give rise to the predicted effects and measures the extent to which provinces with connections with generalist factions benefit relative to provinces with no connection or with connections with technocratic factions.

The second statistical test measures the impact, if any, of the factional dynamics on inflation and lending. The factional model generates a series of predictions that counter the predictions of standard monetary theory. Thus, these counterintuitive predictions need to be tested by time series models. These findings, in combination with the qualitative findings presented in Chapters 6 through 8, provide strong empirical support for the factional model. First, the factional model predicts that high inflation systematically decreases first lending, then inflation in subsequent quarters because inflation creates a favorable political environment for technocratic factions to centralize credit, thereby lowering inflation in a later period.