An Empirical Analysis of Relationship between Financial Development and Economic Growth: The Turkish Case

Burcu Ozcan and Ayse Ari
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Ayse Ari: Istanbul University, Faculty of Economics, Department of Economics, Istanbul, Turkey, Postal: Istanbul University, Faculty of Economics, Department of Economics, Istanbul, Turkey

Business and Economics Research Journal, 2011, vol. 2, issue 1, 121

Abstract: Financial development, financial liberalization and financial deepness have been important research topics in recent years. Especially, the relationship between financial development and economic growth has been analyzed by many researchers. Different results have been obtained since the country sample and econometric methods used in the analysis are different. Thus, there isn’t any consensus about the presence and direction of this relationship. Some writers call this state “egg-chicken problem”. There are four situations about the direction of this relationship: from economic growth to financial development, from financial development to economic growth, bidirectional relationship or there may be no relationship between these variables. In this study the relationship between financial development and economic growth has been analyzed for Turkey by estimating a VAR Model over the 1998-2009 periods. According to Granger causality test, there is a uni-directional relationship between financial development and economic growth in Turkey. The direction of this relationship is from economic growth to financial development. Consequently, Robinson’s “demand-following hypothesis” is corroborated.

Keywords: Financial development; Financial liberalization; Financial deepness; Economic growth; VAR Model (search for similar items in EconPapers)
JEL-codes: E02 E44 O16 (search for similar items in EconPapers)
Date: 2011
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