FINANCIAL LIBERALIZATION, FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH: AN EMPRICAL ANALYSIS FOR TURKEY

The objective of the paper is to seek how financial growth affects economic growth in Turkey in the flourishing world. The financial market is changed and developed very rapidly in the last decade. Moreover the change of financial market has also been brought some innovations and new policies. So this study examines whether financial development leads to economic growth in Turkey. The main elements of financial liberalization that have been used commonly in the literature are considered for analysis. This is because financial liberalization is the first step to achieve financial development and can contribute to development. In the light of financial development between the period of 1980 and 2010, cointegration and Granger casuality tests are applied to assess the finance-growth linkages. There is a strong relation between finance and growth in the short-run, but it is failed in the long-run casuality. Contrary to the conventional findings in the literature, the results of the analysis support that there is one way link from financial development to economic growth for Turkey and it is necessary to take different policies to improve growth and maintain the steady economic growth.

Keywords:

Financial growth, financial liberalization, economic growth, Casuality Cointegration,

PDF

___

Akçoraoğlu, A. (2000), Financial Sector and Economic Growth: An Exogeneity Analysis, Ankara Üniversitesi SBF Dergisi, 55(1), 1-25.
Al-awad, M. & Harb, N. (2005), Financial Development and Economic Growth in Middle East, Applied Financial Economics, 15, 1041-51.
Arestis, P. & Demetriades, P. O. (1997), Financial Development and Economic Growth: Assessing the Evidence,
Economic Journal, 107(442), 783-99. Aziz, J. & Duenwald, C. (2002), Growth-Financial Intermiation Nexus in China, IMF Working Paper, 02/194, Washington.
Beck, T., Levine, R. & Loayza, N. (2000), Finance and the Sources of Growth, Journal of Financial Economics, (1-2), 261-300.
Darrat, A. F. (1999), Are Financial Deepening and Economic Growth Causally Related? Another
Look at the Evidence, International Economic Journal, 13, 19-35. Demetriades, P. & Hussein, K. (1996). Does Financial Development Cause Economic Growth? Time Series
Evidence from 16 Countries, Journal of Development Economics, 51, 387-411. Do, Q-T. & Levchenko, A. A. (2007), Comparative advantage, demand for external finance and financial development, Journal of Financial Economics, 86(3), 796-834.
Edison, H., Klein,M.W., Ricci,L. & Slok, T. (2004), Capital Account Liberalization and Economic Performance:
Survey and Synthesis, IMF Staff Papers, 51(2), 220-256
Erol, T. (1992), Short-Term Macroeconomic Adjustment Process in A Developing Economy: the Turkish Case, 80 and 1981-86, METU Studies in Development, 19(1), 51-65.
Estrella, A. (2001), Financial Innovation and the Monetary Transmission Mechanism Focus on Austria,
Oesterreichische Nationalbank. Fry, M. J. (1997), In Favour of Financial Liberalization, The Economic Journal , 107, 754-770.
Galbis, V. (1977), Financial Intermediation And Economic Growth in Less Developed Countries: A Theoritical
Approach, Journal of Development Studies, 13(2), 58-72. Gürsoy, C. T. & Müslümov, A.(2000), Stock Markets and Economic Growth: A Causality Test, Doğuş University Journal, 2, 124-132.
Hung, F.S. (2003), Inflation, Financial Development and Economic Growth, Journal of International Review of
Economics and Finance, 12, 45-67. King, R.G. & Levine, R. (1993), Finance and Growth, Journal of Economics,108, pp: 717-737.
King, R.G. & Levine, R. (1993), Finance, entrepreneurship and growth: Theory and evidence, Journal of
Monetary Economics, 32(3), 513-542. Levine, R. & Zervos, S. (1996), Stock Market Development and Long-Run Growth, World Bank Economic Review, (2), 323-39.
Levine, R. (1997)Financial Development and Economic Growth: Views and Agenda, Journal of Economic Literature, 35(2), 688-726.
Levine, R. & Zervos, S. (1998), Stock Markets, Banks, and Economic Growth, American Economic Review, 88(3), 58.
Lucas, R., (1988), On The Mechanics Of Economic Development, Journal of Monetary Economics, 22(1), 3-42.
McKinnon, R. I. (1973), Money and Capital in Economic Development, Brookings Institution: Washington.
Milesi-Ferretti, G.M. & Grilli,V. (1995), Economic Effects and Structural Determinants of Capital Controls, IMF
Working Papers 95/31, International Monetary Fund. Mohan, R. (2006), Financial Growth in India: Whither Financial Inclusion?Margin, The Journal of Applied Economic Research, 2, 177-197.
Obstfeld, M. (1994), The Logic of Currency Crises, NBER Working Paper 4640.
Pagano, M. (1993), Financial Markets and Growth, An Overview, European Economic Review, 37, 613-622.
Prasad, E., Rogoff, K., Wei, S-J. & Kose, M. A. (2003), Effects of Financial Globalization on
Developing Countries: Some Empirical Evidence, IMF Occasional Paper 220, Washington D.C.: International Monetary Fund. Romer, P. M. (1986), Increasing Returns And Long Run Growth, Journal of Political Economy, 94(5), 1002-1037.
Schall, L. D. & Haley, C.W. (1996), Introduction to financial management, Mc Graw-Hill, 6th edition.
Schumpeter, J. (1912), The Theory of Economic Development, Harvard University Press, Cambridge.
Shaw, E. S. (1973), Financial Deepening in Economic Development, Oxford University Pres: New York.
Stock, J.H. & Watson, M.M. (2003), Introduction to Econometrics, AddisonWesley.
Tornell, A., Westermann, F. & Martinez, L. (2003), Liberalization, Growth and Finacial Crises:
Lessons from Mexico and the Developing World, Brookings Papers on Economic Activity, 2, 1‐113. Wachtel, A. & Rousseau, P.L. (2000), Inflation, Financial Development and Growth, Working Papers 00-10, New
York University, Leonard N. Stern School of Business.