Abstract:

In this study, the relationship between financial development and economic growth has been investigated by autoregressive distributed lag (ARDL), bounds testing approach, Granger and Hacker-Hatemi-J bootstrap causality tests for Turkey during the period from 1982 to 2016. According to the results of the ARDL bounds testing approach, an increase in financial development have a positive effect on economic growth both in the short and long run. The findings of the two causality tests show that a unidirectional causality is going from financial development to economic growth in the short run. The overall results indicate that financial development is an important factor for economic growth. Therefore, the supply leading hypothesis is valid for Turkey.

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