The Relationship Between the Financial Development and Economic Growth: An Empirical Application for Turkey

The relationship between financial development and economic growth has been extensively analysed. It is generally hold that financial development is crucial for economic growth. The growth of financial development enables the capital to be used more efficiently, increases the investment and production in parallel with the credit provided to the market, and fosters the economic growth. In this study, the relationship between financial development and economic growth was investigated with the quarterly data for the period of 1985-2016. Toda-Yamamoto causality tests were employed to determine the existence and the direction of causality among the variables. The  main  empirical finding in this  paper is that the financial growth has a positive effect on economic growth. This result was also confirmed by the results of analysis related to ''supply-leading'' hypothesis put forward by Patrick (1966).