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Analysis of the Relationships between Financial Development and Economic Growth through Romer's Expanding Variety of Products Model: The Case of Turkey

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  • O uzhan Yilmaz

    (Street: 66; No: 21/19, 34513 stanbul, Turkey)

Abstract

In this article the relation between financial development and growth is examined with the help of the Romer model. In the model growth of the economy is sustained by consistent innovations and openings of new sectors that require large scale and long-term committed capital. We propose that only a well-developed financial system can provide the necessary efficient flow of capital in the economy and enable more diversification and stimulation of investment in more productive but riskier areas. Defining different monetary, loan and security variables as indicators of financial development, longterm equilibrium relation with national income was studied through time series analysis with data belonging to the Turkish economy. The econometric results support the hypothesis about existence of a co-integrating relation between financial development and growth.

Suggested Citation

  • O uzhan Yilmaz, 2016. "Analysis of the Relationships between Financial Development and Economic Growth through Romer's Expanding Variety of Products Model: The Case of Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1155-1164.
    • Handle: RePEc:eco:journ1:2016-03-44
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    More about this item

    Keywords

    Financial Development; Romer Growth Model; Innovation; Co-integration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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