The effects of bank loans on foreign trade: Evaluation for conventional and participation banks

Participation banking is developing rapidly both in the world and in Turkey. Participation banking, which operates based on equity capital, enables to transfer idle funds due to religious beliefs to the financial system. The allocated funds are used for production and trade, which increases productivity and investments. Although there are many studies in the literature examining the relationship between participation banking and economic growth, there are limited studies focusing on the effect of participation banking on exports, which is an important driver factor of economic growth. In this direction, the purpose of the thesis is to investigate the impact of participation banking on foreign trade in Turkey for the period 2005:12-2020:09. In the thesis, the autoregressive lag-distributed model (ARDL) to enable short-run and long-run estimation results is used to analyze the role of participation banking on foreign trade. The results indicate that deposit and participation banks' loan volume have a positive effect on foreign trade in the long-run. However, the contribution of deposit banks to export is higher than the participation banks. In the short-run, the role of deposit and participation banks in the development of foreign trade is similar and they contribute positively to exports. The findings imply that participation banks attract Islamic funds to the financial market and make positive contributions to the real sector. Therefore, the implementation of policies that will ensure the development of participation banking is important in terms of economic sustainability. Key Words: Participation banking, Foreign trade, Export, Financial sector, ARDL methods