The determinants of financial deepening and its effect on income distribution: The case of Turkey

Countries need financial systems that are open to innovations and development. Therefore, the importance of the concept of financial deepening in national and international markets is increasing day by day. It is expected that the diversification that occurs in the transfer of funds for investments with the emergence of new financial instruments or the development of existing instruments with financial depth, will affect the income distribution positively by activating the increase in the amount of production. In addition, it is predicted that the diversity in financial institutions and instruments will contribute positively to income distribution by allowing individuals or institutions that do not have sufficient financing to access financial services easily. In the literature of our country, it is striking that there are not enough studies that deal with financial deepening, financial development and income distribution under a single heading. In this study, which was carried out with the aim of eliminating this deficiency in the literature, the effects of financial deepening determinants on income distribution were investigated. In this context, the Distributed Delayed Autoregressive Lag (ARDL) boundary test was applied in the light of the data of the Financial Depth Ratio, Financial Development Ratio and Human Development Index (HDI) variables covering the years 1990-2021 for Turkey. In the analysis carried out to determine the effects of financial deepening and financial development on income distribution, first of all, the existence of a long-term relationship between the said variables was clarified. Then, the consistency of the model established by Cusum of Squares and Cusum tests has been confirmed. In the examination of the long-term coefficients obtained as a result of the ARDL boundary test, it has been determined that the financial deepening Index and the human development index have an inverse relationship in Turkey. On the other hand, it has been concluded that the relationship between financial development and human development index is in the same direction.