The relation between financial development and economic growth in Turkey

The global financial crisis that took place in the USA in 2008, affecting all economies, made the relationship between financial development and economic growth back on the agenda. As a result, the relationship between financial development and economic growth has become a subject of discussion and has been highly examined by a lot of authors. The results of the analyzes were also different due to different examples of other countries and different econometric methods which were used. Due to this reason, there was a disagreement about the existence and direction of the relationship and this led to some authors calling it an "egg-chicken problem". The aim of this study is to analyze the causality relation between financial development and economic growth for Turkey in the first quarter of 1933 and the second quarter of 2022 by using the Granger causality and frequency domain causality test. While the economic growth variable is calculated as the annual growth rate in real GDP; the financial development variable is calculated as in the studies from Aydin (2019) and Kasim et al. (2021) as the ratio of loans given to the private sector by banks to GDP. The annual growth rate was calculated for the variable and used as such in the analysis. In the study, ADF and PP unit root tests were used to determine the degree of stationarity of the variables and it was seen that all the series were stationary in the first differences. In the study, the relationship between economic growth and financial development was investigated with the traditional Granger causality test and the frequency domain causality test which was developed by Breitung and Candelon (2006). According to the results of the study, it shows that there is a one-way causality relationship between economic growth and financial development in the Turkish economy, and while financial development is affected by economic growth, economic growth is not affected by financial development.