Financial liberalization and economic growth relationship: The case of Turkey

The financial liberalization, which has it?s political foundations from Neo-liberal policies, is mainliy based on McKinnon ? Shaw hypotesis. After the Second World War the applications of financial repression has become as the dominant policy. These policies, from the beginning of 1980s, has left their location to liberalization policies. According to the McKinnon ? Shaw hypotesis, as a result of elimination of financial repression and implementation of financial liberalization policies, with an increase occured in savings and invesments, more efficient allocation of resources will be provided and the economic growth will pick up speed.The financial liberalization policies which is on the agenda of developed countries in the 1970s, has been implemented in the developing countries in the 1980s by the orientation of developed countries and international organizations. These policies has started to be implemented in the Turkish economy with the of 24th January decisions. In this concept many financial reforms have been adopted in the Turkish economy. In 1989, after stepping into external financial liberalization (convertibility) with the Dec. No. 32, in the twenty year period, Turkish economy has faced many instabilities and economical crises like many other developing countries.The purpose of this study is to analyze the impact of financial liberalization policies, which is implemented in Turkish economy in the period after 1980, on economic growth. This study is composed of three main parts. In the first part, firtsly the financial liberalization has been expressed conceptually after that, theoretical approaches to financial liberalization has been described and channels of financial liberalization affect economic growth has been evaluated. In the second part; financial liberalization oriented reforms in the Turkish economy has been discussed and the results brought by these reforms has been focused on. In the last part of the study; the relationship between level of financial liberalization and economic growth has been modelled with Vector Autoregression method and the findings obtained has been analyzed. As the result of the econometric analysis; a negative and significant relationship between financial liberalization and economic growth has been detected. The relationship is excluding the real effects on RGDP so that in the long term it has been found to lead to a negative growth in the economy.