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The Analysis Of The Relationship Between Financial Development And Economic Growth With Bound Testing Approach In Turkey: 1987-2007

Author

Listed:
  • Halil Altintas
  • Yücel Ayricay

    () (K.Maras Sutcu Imam University)

Abstract

This paper has empirically examined the relationship between financial development and economic growth in Turkey by using quarterly observation over the period 1987–2007. The model is estimated with the bound testing approach to cointegration with the autoregressive distributed lag (ARDL) framework advanced by Pesaran et al (2001). The results suggest that there is a long-run relationship between real growth, financial development, trade openness and real interest rate. The coefficient of financial development indicates that a 1 percent increase in financial depth increases economic growth by 0.67 percent. While the coefficient of real deposit rate also suggests that a 1 percent rise in real interest rate will increases real output by 0.12 percent in the long run. Although, the coefficient of trade openness is statistically remained insignificant. Since the effects of financial development policy are higher than that of real interest rate which supports the argument that in a developing country like Turkey the availability of funds rather the cost of funds is more important to raise real income. Moreover, this result supports the Mckinnon and Shaw hypothesis that an increase in real interest rate facilitates financial savings and real income.

Suggested Citation

  • Halil Altintas & Yücel Ayricay, 2010. "The Analysis Of The Relationship Between Financial Development And Economic Growth With Bound Testing Approach In Turkey: 1987-2007," Anadolu University Journal of Social Sciences, Anadolu University, vol. 10(2), pages 71-98, May.
  • Handle: RePEc:and:journl:v:10:y:2010:i:2:p:71-98
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    File URL: http://www.anadolu.edu.tr/arastirma/hakemli_dergiler/sosyal_bilimler/pdf/2010-2/2010_02_06.pdf
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    References listed on IDEAS

    as
    1. Gerhard Clemenz & Mona Ritthaler, 1992. "Credit markets with asymmetric information : a survey," Finnish Economic Papers, Finnish Economic Association, vol. 5(1), pages 12-26, Spring.
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    Keywords

    Financial Development; Economic Growth; Bound Testing; Turkey;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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