Empirical analysis of the relationship between financial development, exports and economic growth in commonwealth of independent states countries

Financial development and export performance have great significance for economic development of the developing countries and countries with economies in transition, such as Commonwealth of Independent States (CIS) countries. In this study, it is attempted to research the relation of four different financial development [Broad money (% of GDP), Gross capital formation (% of GDP), Domestic credit to private sector by banks (% of GDP), Monetary Sector credit to private sector (% of GDP)] indicators and export performance, sampled from 9 member states of the CIS countries, with economic growth for a period of 1995-2020. In the empirical application part of the study, the long-term relationship was demonstrated with VECM. The effect processes of the variables at certain delays were evaluated with the Impulse Response Functions. For the cointegration research of the relations between the variables, the cointegration tests of Pedroni (1999, 2004), Kao (1999), Westerlund-Edgerton (2007) and Johansen Fisher are used. Wald test was used for short-term analysis, FMOLS and DOLS methods were used for long-term coefficient estimates. For the panel causality relationship, Emirmahmutoglu and Kose (2011)'s panel causality approach was used. According to the findings, it was concluded that there is a cointegration relationship between three of the four different financial development [Broad money (% of GDP), Domestic credit to private sector by banks (% of GDP), Monetary Sector credit to private sector (% of GDP)] indicators and economic growth. The generalized results presented findings that both financial development and exports had positive effects on economic growth. However, according to the results of the implementation, there is not enough evidence that the Monetary Sector credit to private sector (% of GDP) variable generally affects economic growth negatively, while the Gross capital formation (% of GDP) variable affects economic growth. In addition, it was seen that all variable coefficients were significant for the FMOLS model, while only the Broad money (% of GDP) and Export variables were significant in the DOLS model. When the results of FMOLS and DOLS models are assessed together, it is concluded that in the long run, exports affect economic growth positively but less than financial development. Finally, according to Emirmahmutoglu and Kose (2011) panel causality test results, it was concluded that there is a one-way panel causality relationship from economic growth to Broad money (% of GDP), Domestic credit to private sector by banks (% of GDP) and Monetary Sector credit to private sector (% of GDP) variables.