Direction of Causality between Financial Development and Economic Growth in Turkey
Cengiz Yılmaz
*
Department of Business, Afyon Kocatepe University Gazlıgöl Yolu, ANS Kampusü, 03200 Afyon, Turkey.
Banu Demirhan
Department of Economics and Administrative Programs Afyon Kocatepe University, Eskişehir Yolu, Afyon, Turkey.
*Author to whom correspondence should be addressed.
Abstract
This paper has investigated the causality relationship between financial development and economic growth in Turkey, using data from 2005:04 to 2020:03. We construct a time-series model to explore causality relationships between the variables. In the study, two indicators were used as financial development indicators: banking loans to the private sector and money supply to GDP (Gross Domestic Product). The empirical results have represented a bi-directional relationship between financial development and economic growth in the short run. On the other hand, we have not found a causality relationship in the long term.
Keywords: Financial development, economic growth, cointegration, Turkey