Finance and Growth in Turkey: Casuality Issue

There has been a renewed interest in the nature of the links between the development of financial systems and economic growth. Many theoretical models have There has been a renewed interest in the nature of the links between the development of financial systems and economic growth. Many theoretical models have been proposed to show how financial markets and intermediary activity promote growth. We use a multivariate Granger causality tests within an error-correction framework for Turkey to analyze the causality between the financial sector development and growth for the period 1960-2001. We find that the relationship between financial development and economic growth is in the nature of ‘supply-leading’ if the sum of the M2Y/GNP ratio and market capitalization is taken as the measure of financial development, but when the variable representing the financial development becomes the ratio of private sector credit to total domestic credit, there is no causal relationship. However, in spite of this conflicting result, it seems that there is no any supportive evidence for the demand.