Determinants of financial development: An application on Turkey

Financial development is of great importance for the healthy growth of a country's economy and sustainable development. A sound financial structure, with its capacity to provide capital to entrepreneurs, makes it possible to establish new enterprises and encourage innovation. This can help increase economic competitiveness. The financial system, another important concept, promotes economic growth through channelling savings into investments, raises employment levels and increases overall welfare. These factors show how important financial development is for a country's economic progress. In this study, ARDL bounds test approach is used to determine the factors affecting financial development in Turkey for the period 1991-2020. Financial development index is selected as the dependent variable, while globalisation index, foreign direct investment, economic growth and market capitalisation are determined as independent variables. According to the long-run coefficient estimates, economic growth, globalisation and market capitalisation have an impact on financial development. These findings indicate that these factors play a determining role for the long-term financial development of the economy. In the short-run coefficient estimation results, it is among the findings that the first lag of economic growth, foreign direct investments and market capitalisation have significant short-term effects on financial development. Among the policies that should be implemented to support the economic growth of the country, there should be measures to ensure integration with global markets. In addition, deepening financial markets and adopting policies that encourage foreign direct investments can support economic growth. Within this policy framework, structural reforms to increase the competitiveness of the economy also play an important role. In this way, while economic growth gains momentum, the country's integration into the global economy and the development of financial markets will also be supported.