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Does financial depth impact economic growth in North Cyprus?

Author

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  • Turgut Türsoy

    (Near East University)

  • Faisal Faisal

    (Abdul Wali Khan University)

Abstract

This study purpose is to connect the proxy of financial development which is total banking sector’s deposits with the economic growth in North Cyprus. The reason for using the total deposit differently with the existing literature is because North Cyprus is bank-based financial system. Therefore, this study provides an analysis of the connection between finance-growth nexus in North Cyprus from 1978 through 2015, using the autoregressive distributed lag (ARDL) model and combined cointegration to evaluate and verify the relationship. In addition, this research added the inflation rate to the model specification to investigate the inflation-growth interaction. The results revealed that both methods of cointegration provided robust evidence for a long-run relationship between financial debt and growth. The ARDL long-run and short-run coefficients showed the positive impact of depth and the negative impact of inflation on economic growth, thereby confirming the strength of the finance-growth and inflation-growth connections. Moreover, financial depth had a larger coefficient than the inflation rate. Finally, the VECM Granger causality test provided evidence for unidirectional causality from the total deposits and inflation rate to economic growth in North Cyprus. These results are significant for the policymakers of North Cyprus because the findings show that economic growth can be improved by enhancing the deposit rates in the financial system.

Suggested Citation

  • Turgut Türsoy & Faisal Faisal, 2018. "Does financial depth impact economic growth in North Cyprus?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-13, December.
    • Handle: RePEc:spr:fininn:v:4:y:2018:i:1:d:10.1186_s40854-018-0096-y
    DOI: 10.1186/s40854-018-0096-y
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    Cited by:

    1. Clement Olalekan Olaniyi, 2022. "On the transmission mechanisms in the finance–growth nexus in Southern African countries: Does institution matter?," Economic Change and Restructuring, Springer, vol. 55(1), pages 153-191, February.
    2. Clement Olalekan Olaniyi & Sunday Idowu Oladeji, 2021. "Moderating the effect of institutional quality on the finance–growth nexus: insights from West African countries," Economic Change and Restructuring, Springer, vol. 54(1), pages 43-74, February.
    3. Turgut Tursoy, 2019. "The interaction between stock prices and interest rates in Turkey: empirical evidence from ARDL bounds test cointegration," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-12, December.
    4. Tursoy, Turgut, 2018. "The dynamic relationship between Financial Development and the Energy Demand in North Cyprus: Evidence from ARDL Bounds and Combine Cointegration Tests," MPRA Paper 88324, University Library of Munich, Germany.
    5. Rishan Sampath Hewag & Jaafar Pyeman & Norashida Othman, 2023. "Effect of Structural Break on Financial Development and Economic Growth Nexus in Middle-Income Countries in Asia: Moderating Role of Technological Advancements," Information Management and Business Review, AMH International, vol. 15(2), pages 205-214.

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