Relationship Between Financial Development and Growth: Bootstrap Causality Analysis for Turkey

The impact of financial development on economic growth in the globalized world economy is a much-emphasized issue in the economic literature. The theoretical and empirical studies on the subject generally reveal that an advanced financial system will increase the economic growth by providing functionality to the markets or that economic growth will bring about the development of the financial system. In addition to these two perspectives, in the literature, there are few approaches suggest that there is no relationship between financial development and economic growth. Also, empirical studies examining the relationship between financial development and economic growth require different results regarding the relationship between variables, analysis periods and the econometric method used. In this study, the relationship between financial development and economic growth in Turkey was examined by Hacker and Hatemi-J (2012) bootstrap causality test using quarterly data 2006Q1-2018Q2 period. From total domestic loans that variables are taken to represent financial development, only one-way causality to economic growth was found. These results indicate that supply-leading hypothesis is valid in Turkey.