Demi han, Banu
A icle
Examining he inancial de elopmen channels a ec ing
economic g ow h in Tu key
Ekonomika
P o ided in Coope a ion wi h:
Vilnius Uni e si y P ess
Sugges ed Ci a ion: Demi han, Banu (2025) : Examining he inancial de elopmen channels a ec ing
economic g ow h in Tu key, Ekonomika, ISSN 2424-6166, Vilnius Uni e si y P ess, Vilnius, Vol. 104,
Iss. 1, pp. 48-69,
h ps://doi.o g/10.15388/Ekon.2025.104.1.3
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Ekonomika ISSN 1392-1258 eISSN 2424-6166
2025, ol. 104(1), pp. 48–69 DOI: h ps://doi.o g/10.15388/Ekon.2025.104.1.3
Examining he Financial De elopmen
Channels A ec ing Economic G ow h
in Tu key
Banu Demi han
A yon Koca epe Uni e si y, A yon, Tu key
E-mail: [email p o ec ed]
ORCID: h ps://o cid.o g/0000-0002-0902-4629
Abs ac . In he ea ly 1980s, Tu key ook s eps owa ds inancial libe aliza ion. Acco dingly, policymake s
ha e implemen ed policies o he de elopmen o he inancial sys em. Since hen, de elopmen s in he banking
sec o ha e d i en economic g ow h and me he p i a e sec o ’s demand o unds. The esea ch p oblem
in ol es analyzing he ela ionship be ween inancial de elopmen and economic g ow h in Tu key, which is
c ucial in de e mining he e ec i eness o policies implemen ed o inancial de elopmen . De e mining he
sou ce h ough which inancial de elopmen is i al o economic g ow h is also c i ical in designing hese
policies. This esea ch examines he channels h ough which inancial de elopmen impac s economic g ow h
in Tu key. By using da a om 1974 o 2023 o Tu key, his s udy conduc ed a G ange causali y es based
on VECM and he Toda Yamamo o me hod o analyze he causal ela ionship be ween economic g ow h and
inancial de elopmen . The analysis also included impulse esponse unc ions. Ou s udy e eals ha inancial
de elopmen con ibu es o economic g ow h. Policymake s should implemen policies ha p io i ize he
de elopmen o he inancial sys em.
Keywo ds: Financial de elopmen , economic g ow h, VECM, Toda-Yamamo o, impulse esponse unc ion,
Tu key.
1. In oduc ion
Ha e Tu key’s inancial de elopmen e o s o e he yea s con ibu ed o economic g ow h?
I so, which componen s o he inancial sys em play a ole in his con ibu ion? In 1980, he
inancial sys em began o ad ance in Tu key. The ea ly 1980s wi nessed signi ican measu es
implemen ed, including he de elopmen o he capi al and in e bank money ma ke s. Fu -
he mo e, he Go e nmen implemen ed measu es o libe alize o eign exchange legisla ion.
These de elopmen s enhanced he e iciency o he inancial sys em and had a posi i e e ec
on he eal economy. Tu key adop ed an open economy app oach and libe alized i s inancial
sec o by implemen ing signi ican e o ms since he 1980s. The p ocess aimed o a ge
he libe aliza ion o capi al lows on a domes ic and in e na ional le el and he expansion
o ade olumes and o eign in es men (Pamuk, 2019; Fı a , 2009).
Recei ed: 11/08/2024. Re ised: 09/09/2024. Accep ed: 05/01/2025
Copy igh © 2025 E dal Demi han. Published by Vilnius Uni e si y P ess
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License, which pe mi s un es ic ed use,
dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal au ho and sou ce a e c edi ed.
Con en s lis s a ailable a Vilnius Uni e si y P ess
Banu Demi han. Examining he Financial De elopmen Channels A ec ing Economic G ow h in Tu key
49
Many s udies on he ela ionship be ween inancial de elopmen and economic g ow h
use Tu kish da a. S udies analyzing he ela ionship be ween inancial de elopmen and
economic g ow h ha e mainly used ime se ies me hods. Examples o hese s udies a e
Kuzucu (2022), Coşkun and Kuloğlu (2022), Aşık (2023), Kılıç e al. (2019), and E oğlu
and Ye e (2021). These s udies used loans o he p i a e sec o as an indica o o inancial
de elopmen . On he o he hand, hey did no analyze he de elopmen o he capi al
ma ke . In addi ion, al hough he s udies conduc ed by using qua e ly da a co e he da a
o 2023, he s udies conduc ed using annual da a include he la es da a o 2019 only.
Finally, he s udies ha used annual da a did no inco po a e signi ican s uc u al changes
in he Tu kish economy in o hei models. Ou s udy di e s om ecen s udies in ha
i conside s he de elopmen o he capi al ma ke , co e s a mo e ex ended pe iod, and
examines s uc u al changes in he Tu kish economy. The e o e, he esea ch p oblem
in his s udy is whe he he inancial de elopmen policies implemen ed in Tu key o a
long ime con ibu e o economic g ow h. Ano he esea ch p oblem is o de e mine he
channels h ough which hese policies con ibu e o economic g ow h. In o he wo ds,
we aim o assess he con ibu ion o he componen s o he inancial sys em.
This s udy se ou o answe he ollowing ques ions: (1) Has inancial de elopmen
in Tu key since he 1980s impac ed economic g ow h? (2) I so, wha is he sou ce o his
impac ? We expec he de elopmen o he Tu kish banking sys em and capi al ma ke s
o acili a e he ans e o sa ings o in es men s and boos consump ion expendi u es.
The e o e, he s udy hypo hesizes ha inancial de elopmen posi i ely a ec s economic
g ow h. Fu he mo e, gi en he high le el o de elopmen in Tu key’s banking sys em,
he s udy also hypo hesizes ha he sou ce o inancial de elopmen comes mainly om
he banking sys em.
This s udy aims o in es iga e he channels h ough which inancial de elopmen a ec s
economic g ow h in Tu key. In his con ex , we will de e mine whe he he banking sys em
o he capi al ma ke is mo e e ec i e o economic g ow h. Fo his pu pose, we will
equen ly use ime se ies me hods, as used in he li e a u e. Fi s , we will apply VECM
and impulse- esponse unc ions o ou analyses. Nex , we will conduc Toda-Yamamo o
analysis o p o ide me hodological suppo . We will also de e mine sho - e m and long-
e m e ec s by using hese me hods.
This s udy examines he causal ela ionship be ween inancial de elopmen and
economic g ow h in Tu key om 1974 o 2023. This s udy makes a ious con ibu ions
o he exis ing li e a u e. Fi s , his esea ch analyzes he ela ionship be ween inancial
de elopmen and economic g ow h o e a e y long pe iod, conside ing he s uc u al
b eaks in he Tu kish economy. The inancial sys em in Tu key has unde gone signi ican
de elopmen since he 1980s; he e o e, his s udy p o ides a long- e m pe spec i e on
he consequences o he combina ions o inancial de elopmen . Secondly, he s udy uses
componen s o inancial de elopmen in Tu key in econome ic models. In his amewo k,
we will de e mine he e ec s o he banking sys em and he capi al ma ke on economic
g ow h sepa a ely.
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We o ganize he es o he a icle as ollows: Sec ion 2 p esen s he heo e ical and
empi ical li e a u e. Sec ion 3 desc ibes he model speci ica ion and da a. Sec ion 4 includes
he empi ical es ima ions. Sec ion 5 p esen s he obus ness check. Sec ion 6 p esen s a
discussion, and he inal sec ion comp ises he concluding ema ks.
2. Theo e ical and Empi ical Li e a u e Re iew
The inancial sys em ans e s su plus unds om economic uni s o hose in need. This
leads o an inc eased in es men and economic g ow h. Cu en de elopmen s in he
inancial sys em enhance i s posi i e impac on economies. The ac ha he o al alue
o all inancial asse s and liabili ies exceeds ha o he en i e economy demons a es he
inancial sys em’s c i ical ole in he mode n wo ld. The signi icance o inancial ools
o economic g ow h is e iden du ing he economy’s up and down cycles (Ru kauskas,
2015). King and Le ine (1993) ound a s ong co ela ion be ween inancial de elopmen ,
eal pe capi a GDP g ow h, physical capi al accumula ion, and imp o emen s in physical
capi al e iciency.
Schumpe e (1911) conduc ed he i s s udy o he co ela ion be ween inancial de el-
opmen and economic g ow h, he eby ma king he beginning o heo e ical explana ions
on his subjec . Acco ding o he p e ailing iewpoin , suppo ed by Schumpe e ’s seminal
s udy in 1911, he s ock ma ke ’s g ow h bene i s he economy by p o iding liquidi y and
a me hod o dis ibu ing while minimizing isks. Fu he mo e, i acili a es he e ec i e
dis ibu ion o esou ces owa d p o i able p ojec s, minimizes expenses ela ed o in o -
ma ion and ansac ions, and e en ually empowe s o ganiza ions o pu sue success ul
en u es (Ib ahim, 2011). Acco ding o he Schumpe e ’s model, he inancial sec o ’s
g ow h is one o he main ac o s ha igge economic g ow h.
Many economis s ha e ecognized he c ucial ole o inancial ma ke s in economic
de elopmen . Schumpe e (1934) no ed he ole o inancial in e media ies in di ec ing
esou ces owa d mo e p oduc i e in es men s, while Bageho (1873) and Hicks (1969)
emphasized he signi icance o inancial de elopmen o he economy. The au ho s
belie ed ha he p esence o inancial ma ke s and ins i u ions played a c ucial ole in
acili a ing he indus ial e olu ion. This was achie ed by enabling en e p ises o bo -
ow and lend, encou aging he adop ion o new echnologies, and pu suing iskie ye
po en ially mo e p o i able in es men s (Capasso, 2004). Mo eo e , McKinnon (1973)
and Shaw (1973) desc ibe inancial libe aliza ion as es ablishing highe in e es a es
ha equalize he demand and supply o sa ings. Acco ding o he wo au ho s, highe
in e es a es will enhance sa ings and inancial in e media ion while imp o ing sa ings
e iciency (Balassa, 1990).
Pa ick (1966) p o ided wo de ini ions o he connec ion be ween inancial de el-
opmen and economic g ow h. Economic g ow h closely co ela es wi h he inc easing
demand o inancial se ices. Financial de elopmen enables he e ec i e ans o ma ion
o sa ings in o in es men s, which suppo s economic g ow h. Mo eo e , acco ding o
Robinson (1952), he e is a co ela ion be ween he g ow h o he inancial sys em and
Banu Demi han. Examining he Financial De elopmen Channels A ec ing Economic G ow h in Tu key
51
economic de elopmen . Ce ain iewpoin s a gue ha inancial de elopmen does no
impac economic g ow h. The pionee o hese in es iga ions, Lucas (1988), highligh ed
ha physical and human capi al and echnological ad ancemen s d i e economic p og ess.
Se e al analyses in he li e a u e on he ela ionship be ween inancial de elopmen
and economic g ow h employ ime se ies echniques o a speci ic coun y, while o he s
ely on es ima ing panel da a models ha combine da a om many coun ies. Some s ud-
ies in he li e a u e on inancial de elopmen and economic g ow h employ ime se ies
echniques ha ocus on a pa icula coun y, while o he s combine da a om mul iple
coun ies o cons uc panel da a models. While se e al o hese models ocus on he
in luence o inancial de elopmen on economic g ow h, o he s examine he causal ela-
ionship be ween hese wo a iables.
Recen s udies ha conduc causali y analyses based on panel da a models demon-
s a e he ela ionship be ween economic g ow h and inancial de elopmen . M a and
Belaz eg (2021) can be gi en as an example o hese s udies. Once mo e, ecen s udies
(e.g., Nguyen e al., 2022; P adhan e al., 2013; Çına e al., 2024) ha e p o en a wo-way
causali y ela ionship be ween economic g ow h and inancial de elopmen .
The ela ionship be ween inancial de elopmen and economic g ow h in coun ies
may also depend on hei income le els. Canbaloğlu and Gü gün (2019) conduc ed a s udy
whe e hey ound ha he e was no ela ionship be ween inancial de elopmen and eco-
nomic g ow h in coun ies in he uppe -middle and high-income ca ego ies. Despi e his,
hey disco e ed a unidi ec ional causali y, indica ing ha inancial de elopmen d i es
economic g ow h in coun ies classi ied as low- and lowe -middle income.
Se e al s udies ha e examined he ela ionship be ween inancial de elopmen and
economic g ow h by employing panel da a echniques and combining da a o coun y
g oups. Fo ins ance, he s udies conduc ed by Ib ahim and Alagidede (2018) and Asan e
and Takyi (2023) ha e de e mined ha he de elopmen o inancial sys ems suppo s
economic g ow h in sub-Saha an coun ies. Ahmed (2016) conduc ed ano he s udy on
coun ies in sub-Saha an A ica, which ound ha in e na ional inancial in eg a ion
posi i ely impac s economic g ow h by enhancing inancial de elopmen . Bis (2018)
demons a es ha inancial de elopmen in low-income coun ies posi i ely in luences
economic g ow h. In hei s udy, Ekanayake and Tha e (2021) employed a la ge da ase
o de e mine a ious panel ela ionships ha exhibi di e ences ac oss a ious coun y
g oups wi hin de eloping coun ies. Acco ding o Abbas e al. (2022), inancial de el-
opmen in middle-income coun ies con ibu es o economic g ow h, wi h a pa icula ly
signi ican impac in uppe -middle-income coun ies. While mos o he li e a u e indi-
ca es ha inancial de elopmen has a posi i e e ec on economic g ow h, some s udies
sugges ha inancial de elopmen has a nega i e impac on economic g ow h, as shown
by Wen e al. (2022).
In addi ion o he impac o inancial de elopmen on economic g ow h, some s udies
examine he consequences o inancial e o ms. Fo ins ance, Boikos e al. (2022) de e -
mined ha inancial e o ms ha e a g ea e impac on economic g ow h han inancial
de elopmen in de eloped and de eloping coun ies. Fu he mo e, esea che s ha e ex-
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52
amined he ela ionship be ween inancial de elopmen and economic g ow h on a sec o al
basis. Us a z e al. (2021) conduc ed a s udy ha demons a ed he posi i e in luence o
inancial de elopmen on he g ow h o he ag icul u e and se ice sec o s. A e a ce ain
poin , inancial de elopmen begins o in luence he indus y sec o .
Fu he mo e, esea che s ha e conduc ed s udies in he li e a u e by using he panel da a
echnique, employing da a om indus ialized coun ies. Swamy and Dha ani (2019) ound
a long- e m in e ed U-shaped ela ionship be ween inancial de elopmen and economic
g ow h. Financial de elopmen acili a es i ms’ inancing o p i a e in es men , he eby
suppo ing economic g ow h. Cas o e al. (2015) used i m-le el da a o demons a e how
inancial de elopmen in B azil in luences in es men s o i ms.
Many s udies ha e been conduc ed in Tu key o in es iga e he causal ela ionship
be ween economic g ow h and inancial de elopmen . S udies examining he causal con-
nec ion be ween inancial de elopmen and economic g ow h in Tu key ha e p oduced
di e en indings. While some s udies, such as Aşık (2023), Aca a cı e al. (2007), E oğlu
and Ye e (2021), and Şey anlıoğlu (2024), indica e ha inancial de elopmen leads o
economic g ow h, o he s udies, such as Aslan and Küçükaksoy (2006), Kandı e al.
(2007), Taşse en and Yılmaz (2022), A ay (2020), and Özcan and A ı (2011), sugges ha
economic g ow h leads o inancial de elopmen . Some s udies (Demi han e al., 2011;
Kuzucu, 2022; Coşkun and Kuloğlu, 2022; Kılıç e al., 2019) ha e ound a bidi ec ional
causal ela ionship. Mo eo e , A gü (2019) demons a es ha inancial de elopmen does
no signi ican ly impac economic g ow h.
Fu he mo e, se e al s udies in he li e a u e indica e ha he e is no causal ela ionship
be ween inancial de elopmen and economic g ow h. Such s udies include Nu (2021)
and Tekin e al. (2024), Shahzadi e al. (2023), Çe in e al. (2023), Alhassan e al. (2022),
and Li e al. (2021) ha e all ecen ly conduc ed s udies which unde ook o es ima e he
ela ionship be ween inancial de elopmen and a iables such as ene gy consump ion
and ai pollu ion. Mo eo e , Sghaie (2023), As e iou e al. (2024), and Ema a and Said
(2021) ha e conduc ed esea ch indica ing ha he in luence o inancial de elopmen on
economic g ow h is dependen on ade openness, iscal policy, and go e nance. S udies
such as hose pe o med by Younsi and Bech ini (2020) ha e in es iga ed he in luence
o inancial de elopmen on income inequali y.
3. Da a and Model Speci ica ion
3.1. Da a
Econome ic es ima ions co e he yea s 1974 o 2023. The eason o selec ing his pe iod
was he a ailabili y o da a. The models use annual ime se ies da a. The da a used o he
models is a yea ly ime se ies da ase . Financial de elopmen indica o s we e based on
wo a iables. The i s a iable is he o al bank c edi o he p i a e sec o , exp essed as
a pe cen age o GDP (c e); he second is he sha e o he b oadly de ined money supply in
GDP (m2). We depic ed ha p e ious s udies equen ly used hese indica o s. Since ou
esea ch co e ed an ex ended pe iod, we we e able o ob ain hese indica o s consis en ly.
Banu Demi han. Examining he Financial De elopmen Channels A ec ing Economic G ow h in Tu key
53
The dependen a iable, economic g ow h, is de ined as he na u al loga i hm o he eal
GDP (gdp). The con ol a iable, ade openness, is he sum o expo s and impo s o goods
and se ices exp essed as a pe cen age o GDP (open). We sou ced all a iables om he
Wo ld Bank (2024). A e 1980, ou wa d-o ien ed policies we e implemen ed in he Tu kish
economy, and inancial libe aliza ion began. This si ua ion made signi ican con ibu ions o
inancial de elopmen . In addi ion, he Tu kish economy aced wo majo c ises in 1994 and
2001, independen o he global c ises. In his con ex , we included dummy a iables in he
econome ic models o he pe iod a e 1980 and he 1994 and 2001 c ises. The Appendix
displays summa y s a is ics and co ela ion ma ix in Tables A1 and A2.
3.2. Econome ic Model
The i s s ep in analyzing he ela ionship be ween inancial de elopmen and economic
g ow h is o de e mine i he se ies has uni oo s. This s udy employs he Augmen ed
Dickey-Fulle (ADF) and Phillips-Pe on (PP) uni oo es s o de e mine whe he he
se ies in ques ion has a uni oo (Dickey and Fulle , 1979 and 1981; Phillips, 1987; Phil-
lips and Pe on, 1988). We will p oceed wi h ou in es iga ion by applying coin eg a ion
es s i we ind a uni oo , o I(1), in he se ies. This s udy employs he Johansen mul-
i a ia e coin eg a ion echnique, as Johansen (1988) and Johansen and Juselius (1990)
sugges ed. This me hod o e s wo likelihood a io es s, employing ace and maximum
eigen alue s a is ics. In he ace and maximum eigen alue es s, he null hypo hesis is
ha he numbe o coin eg a ing ec o s is less han o equal o , whe e is 0, 1, o 2. In
he λ ace and λmax es s, he null hypo hesis is es ed agains a leas + 1 coin eg a ing
ec o and + 1 coin eg a ing ec o , espec i ely.
We will pe o m he causali y es a e he coin eg a ion es . Acco ding o Engle
and G ange (1987) and G ange (1988), he coin eg a ion o wo ime se ies a iables
esul s in a leas a unidi ec ional G ange causali y. G ange (1988) asse s ha when
coin eg a ion exis s be ween I(1) a iables, he G ange causali y es necessi a es he
inco po a ion o he e o co ec ion e m de i ed om he coin eg a ion equa ion. When
he e is a long- e m ela ionship be ween he a iables, we apply he causali y analysis
using VECM, as shown below.
1 1 1 1 11 1
1 11
p pp
i i i i i i
i ii
gdp gdp c e open z
αβ φ λ ψε
− − −−
= = =
∆=+ ∆ + ∆ + ∆ + +
∑ ∑∑
(1)
2 2 2 2 21 2
1 11
p pp
i i i i i i
i ii
c e gdp c e open z
αβ φ λ ψε
− − −−
= = =
∆=+ ∆ + ∆ + ∆ + +
∑ ∑∑
(2)
2 3 3 3 31 3
1 11
p pp
i i i i i i
i ii
open gdp c e open z
αβ φ λ ψε
− − −−
= = =
∆ =+ ∆ +∆+ ∆ + +
∑ ∑∑ (3)
whe e ∆ is he di e ence ope a o , ε is ze o mean, se ially unco ela ed andom e o
e ms, p ep esen s he numbe o lags, and z -1 is he e o co ec ion e m, he lagged
alues o he e o e m de i ed om he es ima ed long- e m coin eg a ion ela ionship.
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54
The e o co ec ion e m shows he sho - un de ia ions om he long- un equilib ium,
e lec ing he speed o adjus men o any disequilib ium o he long- un equilib ium. I
he e is no coin eg a ion ela ionship, we es ima e Equa ions (1–3) wi hou using e o
co ec ion e ms. The choice o he model in his s udy elies on he exis ing coin eg a ion
ela ionship. We employ dummy a iables in VECM o explo e he e ec s o he 1994 and
2001 c ises and he pe iod o inancial libe aliza ion ollowing 1980. We assign he dummy
a iable o one du ing pe iods o c isis and inancial libe aliza ion, and o ze o o he wise.
To examine causali y om inancial de elopmen o economic g ow h, we compu ed
he Wald es s a is ics unde he null hypo hesis ha all coe icien s o φ1i=0 as a g oup.
Simila ly, when pe o ming he Wald es o de e mine causa ion om economic g ow h
o inancial de elopmen , he null hypo hesis being es ed is ha all coe icien s o β2i=0
as a g oup. A e es ima ing Equa ions (1–3), i he null hypo hesis o all coe icien s o
φ1i=0 o he coe icien o ψ1i=0 is ejec ed, hen i is concluded ha he e is a causali y
om inancial de elopmen o economic g ow h. On he o he hand, i he null hypo h-
esis o all coe icien s o β2i=0 o he coe icien o ψ1i=0 is ejec ed, hen he causali y
ela ionship is om economic g ow h o inancial de elopmen .
We will also conduc causali y analyses using he m2 a iable, a di e en inancial
de elopmen indica o , ins ead o he c e a iable in Equa ions (1–3). Rejec ing he null
hypo hesis ha he explana o y a iables as a g oup a e di e en om ze o indica es a
sho - un causali y om he explana o y a iables o he dependen a iables. The s a-
is ical signi icance o he coe icien ψ1i indica es long- e m causali y om explana o y
a iables o dependen a iables.
4. Empi ical Resul s
Table A1 in he Appendix p esen s he desc ip i e s a is ics o he a iables used in he
econome ic model. The Ja que-Be a es e eals a no mal dis ibu ion o all a iables a
he 5% le el. The s anda d de ia ion indica es he ex en o dispe sion in he da a om he
mean alue. The da a show he highes a ia ion in c e. Table A2 in he Appendix displays
he co ela ion be ween he a iables. Table A2 shows a s ong co ela ion be ween gdp,
c e, m2, and open.
Table 1 ep esen s he ADF and PP es esul s o he le els and i s di e ences o all
a iables used in he econome ic models. Acco ding o he ADF and PP es s, all a iables
a e in eg a ed in o de one in i s di e ences; hus, all a iables a e I(1) o non-s a ion-
a y. We de e mine he op imal lag by minimizing Akaike’s FPE c i e ion. Since he uni
oo es esul s show ha all a iables a e I(1), we can use he Johansen coin eg a ion
echnique. We will, he e o e, pe o m bo h sho - e m and long- e m analyses. Table 2
p esen s he esul s o he Johansen coin eg a ion es o he c e and m2 a iables, which
ep esen inancial de elopmen indica o s. Table 2 indica es ha he e is a s a is ically
signi ican coin eg a ion ela ionship be ween he a iables. The e o e, we conclude ha
gdp, c e, and open ha e a long- un ela ionship. This ela ionship is also alid when m2
is conside ed he inancial de elopmen a iable. Table 2 displays he no malized coin-
eg a ing coe icien s a he bo om.
Banu Demi han. Examining he Financial De elopmen Channels A ec ing Economic G ow h in Tu key
55
Table 1. Uni oo es s
Se ies ADF PP
gdp 0.40 (0) 0.68 (5)
∆gdp -6.80 (0)*** -6.87 (4)***
c e -2.19 (0) -0.94 (3)
∆c e -2.06 (2) -4.71(1)***
m2 1.80 (10) -0.79 (17)
∆m2 -5.35 (3)*** -16.03 (47)***
open -0.74 (2) -0.71 (7)
∆open -6.71(1)*** -7.06 (12)***
Sou ce: he au ho ’s compu a ion
PP is he Phillips-Pe on, and ADF is he Augmen ed Dickey-Fulle es .
*** signi ies he ejec ion o he non-s a iona y null hypo hesis a he 1% le el.
The op imal lag o de o he ADF es is chosen by conside ing he Akaike In o ma ion C i e ia, ep esen ed
in pa en heses.
The bandwid h is chosen o PP es s using he Newey-Wes me hod, and spec al es ima ion uses he Ba le
ke nel, ep esen ed in pa en heses.
The 1%, 5%, and 10% c i ical alues o he ADF and PP es s a e -3.57, -2.92, and -2.60, espec i ely.
Table 2. Coin eg a ion es esul s
(gdp, c e, open) (gdp, m2, open)
Hypo hesized
No. o CE(s)
T ace
S a is ic
0.05
C i ical
Value
P ob. Hypo hesized
No. o CE(s)
T ace
S a is ic
0.05
C i ical
Value
P ob.
= 0* 45.74 29.79 0.0009 = 0* 39.15 29.79 0.0305
≤ 1 12.60 15.49 0.3312 ≤ 1 11.02 15.49 0.7438
≤ 2 1.29 3.84 0.5184 ≤ 2 1.62 3.84 0.2215
gdp= 24.95 + 0.01 c e + 0.04 open
(0.001) (0.002)
gdp= 24.87 + 0.02 m2 + 0.03open
(0.005) (0.005)
Sou ce: he au ho ’s compu a ion
* deno es ejec ion o he hypo hesis a he 5% le el.
The op imal lag o de o he coin eg a ion es is de e mined as 3, chosen by conside ing he Akaike In o -
ma ion C i e ia. S anda d e o s o he coe icien s in he coin eg a ion equa ions a e shown in pa en heses.
Below Table 2, we display he esul s o he coin eg a ion equa ion showing he long-
e m e ec o inancial de elopmen indica o s on economic g ow h. The i s equa ion
shows ha he e ec o c edi o he p i a e sec o on economic g ow h is posi i e. The
second equa ion shows ha he b oadly de ined money supply con ibu es posi i ely o
economic g ow h. Acco ding o he coin eg a ion equa ion, bo h inancial de elopmen
indica o s posi i ely a ec economic g ow h in he long un.
The G ange causali y es based on VECM in es iga ed he causal ela ionship be-
ween inancial de elopmen and economic g ow h. The es esul s indica e ha he c edi
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62
inancial de elopmen , ob ained by using he TY me hod, con i ms he s udies o Özcan
and A ı (2011) and A ay (2020).
Policymake s can bene i om he signi ican policy ecommenda ions p o ided by
he empi ical indings. The esea ch indings indica e ha he inancial sys em’s g ow h
in Tu key since he 1970s con ibu ed o economic g ow h. Implemen ing policies o en-
hance he inancial sys em is c ucial o sus aining an a e age g ow h a e o 4.5 pe cen .
The empi ical esul s sugges ha he inancial sys em is i al o economic g ow h in
Tu key, which is an economy wi h a obus banking sys em. Policymake s mus p io i ize
policies designed o elimina e cons ain s on he inancial sys em’s de elopmen and
ensu e inancial s abili y. High in la ion has been an ongoing p oblem in Tu key o a
long ime. To p e en in la ion, policymake s limi he c edi possibili ies o he inancial
sys em, which, in u n, es ic s he inancial sys em’s in luence on economic g ow h. In
his con ex , i is a o able o implemen iscal and mone a y policies a ionally so ha o
ensu e ha he inancial sys em can pe o m i s unc ions o he highes le el.
Fu he s udies a e needed o in es iga e whe he he impac o inancial de elopmen
on economic g ow h is sensi i e o mone a y and iscal policies. Mone a y and iscal
policies can play a ole in he e ec o inancial de elopmen on economic g ow h. Im-
plemen ing mone a y policies ha e ec i ely educe in la ion will dec ease unce ain y
and s imula e he p i a e sec o ’s demand o c edi , he eby os e ing economic g ow h.
Fu he mo e, he es ablishmen o iscal discipline will be he ounda ion o alloca ing ad-
di ional esou ces o he p i a e sec o , he eby suppo ing economic g ow h. Conside ing
he cu en implemen a ion o economic policies in Tu key which p io i ize p ice s abili y
and inancial s abili y, u he s udy is necessa y o in es iga e he ela ionship be ween
he inancial sys em and mone a y policies. Mo eo e , u he s udies will p o ide mo e
de ailed in o ma ion on he e ec s o inancial de elopmen on sec o al g ow h a es.
Ce ain limi a ions o his s udy could be add essed in u u e esea ch. Fi s ly, we
pe o med analyses wi h limi ed da a, as we only ob ained he annual da a. Second,
signi ican economic and poli ical de elopmen s a ec ed he Tu kish economy du ing
he pe iod examined. Ou models inco po a e s uc u al changes and c ises bu do no
include economic policies implemen ed since 2021. This is due o he una ailabili y o
ime da a necessa y o measu e he impac o hese policies. Despi e all hese limi a ions,
he s udy indings p o ide impo an in o ma ion abou he ela ionships be ween inancial
de elopmen and economic g ow h.
7. Conclusions
Analyzing he ela ionship be ween inancial de elopmen and economic g ow h, as well
as de e mining he sou ce o inancial de elopmen in Tu key, is c ucial o assessing he
e ec i eness o policies implemen ed o inancial de elopmen . This s udy analyzed
Tu key’s da a o 1974–2023 wi h a ious ime se ies me hods. The esul s show ha
inancial de elopmen con ibu ed o economic g ow h du ing he discussed pe iod. This
Banu Demi han. Examining he Financial De elopmen Channels A ec ing Economic G ow h in Tu key
63
con ibu ion comes mainly om he banking sys em. The esul s show a unidi ec ional
causal ela ionship om inancial de elopmen o economic g ow h in Tu key in he sho
and long e m. Al hough economic g ow h a ec s inancial de elopmen , me hodological
di e ences a e obse ed. The esul s con i m he alidi y o he Schumpe e ian heo y
ha inancial de elopmen is a igge ac o in economic g ow h. The esul s also suppo
Pa ick’s (1966) supply-leading app oach.
Policymake s in Tu key ha e long encou aged inancial ma ke de elopmen and
s abili y. E idence sugges s ha Tu key’s inancial de elopmen and s abili y measu es
a e wo king. In his con ex , he de elopmen o he inancial sys em in Tu key will
signi ican ly impac economic g ow h in he u u e. In pa icula , he de elopmen o he
banking sys em will inc ease his impac . Empi ical e idence suppo s he a gumen ha
policies aimed a enhancing inancial de elopmen in Tu key yield gains by s imula ing
economic g ow h. In his con ex , i is bene icial o con inue implemen ing policies o
de elop he inancial sys em and ensu e inancial s abili y. These policies will enable he
p i a e sec o o access he unds i needs and inc ease economic g ow h.
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Banu Demi han. Examining he Financial De elopmen Channels A ec ing Economic G ow h in Tu key
67
Appendix
Table A1. Summa y s a is ics
gdp c e m2 open
Mean 26.72 29.99 37.47 41.42
Median 26.69 20.67 33.73 45.19
Maximum 27.85 70.90 71.60 81.17
Minimum 25.69 13.59 18.03 9.10
S d. De . 0.63 18.27 13.73 16.15
Skewness 0.14 1.06 0.55 -0.07
Ku osis 1.85 2.53 2.25 2.69
Ja que-Be a 2.93 9.82 3.73 0.23
P obabili y 0.23 0.01 0.15 0.89
Obs. 50 50 50 50
Sou ce: he au ho ’s compu a ion
Table A2. Co ela ion ma ix
gdp c e m2 open
gdp 1
c e 0.81 1
m2 0.94 0.88 1
open 0.93 0.67 0.87 1
Sou ce: he au ho ’s compu a ion
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5
10
15
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CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A1. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: c e and open)
-15
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-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A2. CUSUM and CUSUMSQ es s (dependen a iable: c e, independen a iables: gdp and open)
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
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-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A1. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: c e and open)
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
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0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A2. CUSUM and CUSUMSQ es s (dependen a iable: c e, independen a iables: gdp and open)
-15
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0
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CUSUM 5% Signi icance
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0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A1. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: c e and open)
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CUSUM 5% Signi icance
-0.4
-0.2
0.0
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0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A1. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: c e and open)
-15
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0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A2. CUSUM and CUSUMSQ es s (dependen a iable: c e, independen a iables: gdp and open)
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A1. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: c e and open)
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A2. CUSUM and CUSUMSQ es s (dependen a iable: c e, independen a iables: gdp and open)
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A2. CUSUM and CUSUMSQ es s (dependen a iable: c e, independen a iables: gdp and open)
-15
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-5
0
5
10
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02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A1. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: c e and open)
-15
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CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A2. CUSUM and CUSUMSQ es s (dependen a iable: c e, independen a iables: gdp and open)
-15
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-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
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02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A1. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: c e and open)
-15
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-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A2. CUSUM and CUSUMSQ es s (dependen a iable: c e, independen a iables: gdp and open)
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A3. CUSUM and CUSUMSQ es s (dependen a iable: open, independen a iables: c e and gdp)
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A3. CUSUM and CUSUMSQ es s (dependen a iable: open, independen a iables: c e and gdp)
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A4. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: m2 and open)
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A5. CUSUM and CUSUMSQ es s (dependen a iable: m2, independen a iables: gdp and open)
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A3. CUSUM and CUSUMSQ es s (dependen a iable: open, independen a iables: c e and gdp)
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A4. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: m2 and open)
-15
-10
-5
0
5
10
15
02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A5. CUSUM and CUSUMSQ es s (dependen a iable: m2, independen a iables: gdp and open)
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A4. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: m2 and open)
Banu Demi han. Examining he Financial De elopmen Channels A ec ing Economic G ow h in Tu key
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Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A3. CUSUM and CUSUMSQ es s (dependen a iable: open, independen a iables: c e and gdp)
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02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
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0.0
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02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A4. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: m2 and open)
-15
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02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
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02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A5. CUSUM and CUSUMSQ es s (dependen a iable: m2, independen a iables: gdp and open)
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A3. CUSUM and CUSUMSQ es s (dependen a iable: open, independen a iables: c e and gdp)
-15
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02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
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1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A4. CUSUM and CUSUMSQ es s (dependen a iable: gdp, independen a iables: m2 and open)
-15
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02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
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0.0
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0.6
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1.0
1.2
1.4
02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A5. CUSUM and CUSUMSQ es s (dependen a iable: m2, independen a iables: gdp and open)
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A5. CUSUM and CUSUMSQ es s (dependen a iable: m2, independen a iables: gdp and open)
-15
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0
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02 04 06 08 10 12 14 16 18 20 22
CUSUM 5% Signi icance
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1.2
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02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A6. CUSUM and CUSUMSQ es s (dependen a iable: open, independen a iables: m2 and gdp)
-15
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CUSUM 5% Signi icance
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0.6
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1.0
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02 04 06 08 10 12 14 16 18 20 22
CUSUM o Squa es 5% Signi icance
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A6. CUSUM and CUSUMSQ es s (dependen a iable: open, independen a iables: m2 and gdp)
Sou ce: he au ho ’s compu a ion Sou ce: he au ho ’s compu a ion
Figu e A6. CUSUM and CUSUMSQ es s (dependen a iable: open, independen a iables: m2 and gdp)
