The Effect of Commercial Bank Lending on the Economic Development of Turkey

This thesis aims at highlighting the considerable contribution financial development has in terms of economic growth in Turkey from the year 1960 to 2016 with the use of annual time series data extracted from the World Bank Development Indicators (2018) and the Banks Association of Turkey (2018). The results of the co-integration tests indicate that there is a long-run equilibrium relationship between domestic credit, total loans, liquid assets, average profitability and economic growth in Turkey. Furthermore, VECM portrays that there is a positive long-run relationship exists between domestic credit, average profitability, and GDP. Also a negative long-run relationship between total loans and GDP. On the other hand, the results of Granger causality show a causal relationship running from domestic credit to economic growth in Turkey but there is no indication of a causal trend of economic growth to credit. A bi-directional relationship is also captured between total loans and average profitability of the Turkish banks LNTL ↔ LNPROFT.