Abstract:

This study aims to examine the relationship between capital market-based financial development and economic growth in Turkey with quarterly data for the period 1998-2022. Borsa Istanbul equity index trading volume representing financial development and Gross Domestic Product data representing economic growth are used. In the study, Augmented Dickey and Fuller, Lee and Strazizich (2003, 2004) and Christopoulos and León-Ledesma (2010) Fourier KSS unit root tests, and Tsong et al. (2016), coefficient estimation between cointegrated series is performed using Dynamic Least Squares (DOLS) estimator, and finally causality relationships between variables are tested with Hacker and Hatemi J (2012) bootstrap causality test based on Granger causality. In the model where financial development is the dependent variable, a long-run relationship was found between the series. According to DOLS findings, a 1% increase in economic growth leads to a 1.08372% increase in financial development. This result reveals that economic growth is an indicator that increases capital market-based financial development in Turkey. Moreover, according to the causality findings, financial development is the Granger cause of economic growth at 10% significance level. As a result, the DOLS estimator confirms the demand-following model in the relationship between financial development and economic growth, while the causality finding confirms the supply-led model.

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