Relationship between Financial Openness and Growth in Turkey: Bayer-Hanck (2013) Cointegration Analysis

If financial markets operate efficiently, the most important output will be the positive effects on the economic growth and development of countries. Models built on competitive and efficient market approaches indicate that financial openness will support economic growth by increasing the efficiency of capital allocation. Financial openness is the result of financial liberalization and indicates the degree of financial liberalization in a country. Financial openness indicates the financial interdependence of the world economies and is often expressed together with capital inflows and outflows. Financial openness helps investors utilize various financial instruments to mitigate and share risks while operating in international markets. This study examines the short and long term impacts of financial openness on economic growth of Turkey for the period from 2010.Q1 to 2020.Q4. Long-term relationship has been determined using Bayer and Hanck (2013) cointegration analysis. Based on this, financial openness has a 23.1% positive effect on increasing economic growth. The coefficient of the error correction term in the model is negative and statistically significant. The error correction mechanism of the model works. 39.3% of the short-term deviations between the series running together in the long term disappear and the series converge to the long-term equilibrium values. As a result, it has been determined that financial openness has a positive effect on economic growth for Turkey.