Relationship between financial development and economic growth in Turkey

ABSTRACTIn the economic literature, it is denoted that a developed financial system serves to overcome market frictions and to accelerate economic growth. A financial system which applies its functions increases efficiency and productivity by providing scarce resources to be transfer the most efficient investment. This study investigates whether development of financial system has an impact or not in the context of mentioned relation on the economy. The study tries to explore the relation between financial development and economic growth which has argued in the literature. To achieve this goal, financial system is summarized in the first section. In this section, it is given place to definition of financial system, intermediaries and instruments, and regulation of financial sector.In the second section, the relationship between financial development and economic growth is explained, by examining theorical and ampirical studies which have concantrated on financial development in the world. It is touched on definition of financial development, its relationship with economic growth, financial development in the economy literature and its measurements. It is exhibited different perpectives on mentioned relationship with ampirical studies which have tested and theorical studies.In third part, the relationship between financial development and economic growth in Turkey is explained and tested. Principally, process of financial development in Turkey is summarized. Then, measurements of financial development are showed in the case of Turkey and it is referenced some of empirical studies which have tested the relationship between financial development and economic growth in Turkey. As to part of econometric analysis, it is made Co-integretion Analysis and Granger Causality Test, by using Private Sector Credit/GNP, Domestic Credit/GNP, Private Sector Credit/Domestic Credit and Real GNP variables over 1970-2006, and investigated existence of long term or short term relationship between financial development and economic growth.Key Words: Financial Development, Economic Growth, Co-integration, Causality.