Analysis of the relationship between financial development and economics

The use of money and the development of financial markets play an important role in the development of the capitalist system. However, the fragile structure of the financial markets is one of the reasons for the instability of the capitalist system. Therefore, the aim of this study is to investigate the relationship between financial development and economic performance. However, analyzing the study only for OECD countries is a limitation of this study. For the purpose of this study, 12 different datasets have been established within the scope of OECD countries in the 1980-2016 period. In order to determine the direction of the relationship between financial development and economic performance. The financial development index used to represent was obtained from the IMF database and Okun and Hanke misery indices were calculated by the author as a proxy economic performance. Okun's misery index was calculated by adding the inflation and the unemployment rate. In order to calculate the Hanke misery index, long term interest rate was added to the Okun misery index and the growth rate was subtracted from this value. The increase in economic misery was interpreted as a decrease in economic performance. In the study, unlike the previos literature, only the growth variable was not used as an indicator of economic performance to investigate the relationship between financial development and economic performance. In addition, rather than measuring financial development with a single variable, such as private sector loans and capital capitalization, financial development is represented by a comprehensive variable such as the financial development index. Therefore, it is thought that this study will contribute to the existing literature on measuring financial development and economic performance both theoretically and empirically. In order to investigate the relationship between financial development and economic performance, Westerlund panel cointegration analysis, dynamic constant effects estimator and mean group estimator methods were used. After determining the long and short term relations of the whole panel, mean group estimator for units analysis was applied showing the direction of long and short term relations for each country. Furthermore, in the second part of the study, the relationship between the financial development and economic performance in the 2006-2016 period was evaluated for each country according to their descriptive statistics. As a result of the study, it was found that the relationship between financial development and economic performance changes according to both the periods and the countries. This results stems from the fact that countries in the capitalist system are involved in different conjunctures due to their internal and external dynamics. However, the results show that while financial development generally has a significant effect on economic performance, economic performance does not have a significant effect on financial development. Keywords: Financial Development, Economic Performance, Westerlund Panel Cointegration Analysis.