The relationship bank credits and economic growth in Turkey

Financial development cannot be measured by a single variable because it consists of the quantitative size and qualitative characteristics of the financial system and hence different variables are considered as a measure of financial development. Therefore, the relation between economic growth and financial development can vary over the countries, sample periods, and financial development indicators. This study aims to examine the relationship between financial development and economic growth in Turkey by using the monthly data for the periods of 1998-2020 in terms of bank loans. For this purpose, we consider bank credit to the non-financial sector as a financial development indicator in the study. Furthermore, we also take into account the relation between economic growth and bank credit that is provided by the private sector and public banks. To determine whether there is an asymmetric relation between economic growth and bank credits over the low and high financial stress periods, we employ the Threshold VAR model. Empirical results show that although there is bidirectional Granger causality between private bank credit and economic growth during low financial stress episodes. However, we find only unidirectional causality from economic growth to private bank credit during high financial stress periods. On the other hand, public bank credit is determined Granger cause of economic growth in both regimes. In this context, public banks provide an important contribution to economic growth during high financial stress periods.