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Financial Sector Deepening and Economic Growth: Evidence from Turkey

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  • Ardic, Oya Pinar
  • Damar, H. Evren

Abstract

This paper analyzes the effects of financial sector deepening on economic growth using a province-level data set for 1996-2001 on Turkey. This period is associated with a weakly regulated and relatively unsupervised expansion of the banking sector which led to the 2001 financial crisis. Contrary to findings in the previous literature, our results indicate a strong negative relationship between financial deepening-both public and private-and economic growth. In light of the developments in the period of analysis, this result is not surprising, as the main function of the banking sector at that time was to provide financing for the Turkish Treasury, which channeled these funds to the government-albeit mainly for rent distribution purposes. However, it is important to note that the growth of private banking sector needs yet to be examined separately, as government ownership of banks may distort the development of the banking sector as a whole. Yet, it is possible to conclude that financial development may not always contribute to economic growth, and the conditions under which such a contribution takes place should be investigated further.

Suggested Citation

  • Ardic, Oya Pinar & Damar, H. Evren, 2006. "Financial Sector Deepening and Economic Growth: Evidence from Turkey," MPRA Paper 4077, University Library of Munich, Germany, revised Nov 2006.
  • Handle: RePEc:pra:mprapa:4077
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    References listed on IDEAS

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    Cited by:

    1. Muhammad Shahbaz & Ilhan Ozturk & Amjad Ali, 2015. "Electricity Consumption and Economic Growth Causality Revisited: Evidence from Turkey," Bulletin of Energy Economics (BEE), The Economics and Social Development Organization (TESDO), vol. 3(4), pages 176-193, December.
    2. Harold A. Padilla Villa & Lorenzo D. Zanello Riva, 2013. "Relación entre penetración financiera y crecimiento económico. El caso colombiano en el periodo 2001-2010," REVISTA DE ECONOMÍA DEL CARIBE 014733, UNIVERSIDAD DEL NORTE.
    3. Borlea Sorin Nicolae & Puscas Adriana & Mare Codruta & Achim Monica Violeta, 2016. "Direction of Causality Between Financial Development and Economic Growth. Evidence for Developing Countries," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 26(2), pages 1-22, June.
    4. Muhammad Shahbaz & Talat Afza & Muhammad Shahbaz Shabbir, 2013. "Financial Development, Domestic Savings and Poverty Reduction in Pakistan: Using Cointegration and Granger Causality Analysis," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 1(5), pages 59-73, May.
    5. Muhammad Shahbaz, 2013. "Financial Development, Economics Growth, Income Inequality Nexus: A Case Study of Pakistan," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 1(3), pages 24-47, March.
    6. Risikat Oladoyin S. Dauda & Kayode, O. Makinde, 2014. "Financial Sector Development and Poverty Reduction in Nigeria: A Vector Autoregression Analysis (1980-2010)," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(8), pages 1040-1061, August.
    7. Frances N. Obafemi & Chukwuedo S. Oburota & Chukwunonso V. Amoke, 2016. "Financial Deepening and Domestic Investment in Nigeria," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(3), pages 40-54, March.
    8. Karahasan, Burhan Can, 2009. "Financial Liberalization and Regional Impacts on Entrepreneurial Behavior in Turkey," MPRA Paper 29814, University Library of Munich, Germany, revised 2011.
    9. Leyla Yusifzada & Aytan Mammadova, 2015. "Financial intermediation and economic growth," William Davidson Institute Working Papers Series wp1091, William Davidson Institute at the University of Michigan.
    10. Mahmut ERDOGAN & Jülide YILDIRIM & Nadir ÖCAL, "undated". "Financial Development and Economic Growth in Turkey: a Spatial Effect Analysis," EcoMod2008 23800034, EcoMod.
    11. Majumder, Md. Alauddin & Eff, E. Anthon, 2012. "The link between economic growth and financial development: Evidence from districts of Bangladesh," MPRA Paper 44122, University Library of Munich, Germany.
    12. Modebe Nwanneka Judith & Ezeaku Hillary Chijindu, 2016. "Relationship between Financial Development and Economic Growth in Nigeria: A Triangulation Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1842-1850.

    More about this item

    Keywords

    Financial sector; Economic growth; Panel data; GMM; Turkey;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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