The effect of financial and trade openness on economic growth in Turkey

Financial and trade openness have been investigated in the light of economic policies having been started to be implemented with the emergence of the concept of globalization. With the financial and trade openness, the capital have flown more easily, and it have contributed to the development of the economy at the micro and macro levels. In this study, the effect of financial and trade openness on economic growth for the period of 1992Q1-2012Q3 in Turkish economy was examined. For this purpose Dickey-Fuller (1979) and Phillips-Perron (1988) traditional unit root tests were applied. In order to demonstrate the structural breaks in variables, Zivot-Andrews test (1992) that takes into account only internal breaks and Lee-Strazizich test (20003-2004) taking into account double internal breaks were used. In order to identify causality relationships between variables, Vector Autoregressive method developed by Sims (1980) was used, and to bring out the casuality in the frequency domain, the causality test developed by Breitung and Candelon (2006) was applied. According to the results, causality relationship was observed in short and medium term while no relationship was encountered in the long term. Keywords: Trade Openness, Financial Openness, Economic Growth, Causality