Financial Deepening, Access, Efficiency, and Risk as Determinants of Economic Growth Volatility: Regional Evidence from Türkiye

The main objective of this study is to empirically analyze the effects of financial system dynamics (financial deepening, access, efficiency, and risk) in Türkiye on regional economic growth volatility. In this study, Panel ARDL (Pooled Mean Group) estimator and Dumitrescu-Hurlin (2012) panel causality analyses were applied using annual data from 81 provinces in Türkiye for the period 2007-2024. The findings indicate that financial system dynamics have effects on macroeconomic stability in different ways. According to long-term findings, per capita deposits and bank branch network, representing financial access, statistically significantly reduce growth volatility. Conversely, it was found that an increase in per capita credit volume increases regional growth volatility. Another important finding of the study is the bidirectional causal relationship between the non-performing loan ratio, representing financial risk, and growth volatility. This interaction shows that economic contraction increases non-performing loans, and increased risks fuel macroeconomic volatility. The results indicate that focusing solely on credit expansion is insufficient for achieving regional economic stability; Instead, it suggests that holistic policies should be developed based on expanding access to finance, maintaining credit quality, and allocating resources efficiently.