Despite the unquestionable importance of financial markets in the economy, the factors promoting financial development have just recently begun to be researched intensively. In this context, the aim of the study is to explain the reasons for the financial development gaps among provinces in Turkey on the basis of capital accumulations. According to the results of the spatial panel data model estimates based on indices of 81 provinces in Turkey for the period 2005-2009, it was found that the level of social capital best explained the level of financial development, followed by physical capital and human capital. Additionally, it was found that capital accumulations contributed above average not only to the financial development of that province, but also to that of the surrounding provinces.

The aim of this chapter is twofold: first, to present in the most proper manner the definition of financial development, considering that bad definition leads to bad measurement and taking into account the discussions in the literature. Second, it aims to discuss how to measure the level of financial development. In line with these objectives, financial development index values for 1998-2011 are calculated by principal components analysis for 77 countries considering the suitable indicator in terms of the right definition of financial development. The calculated indices helps to obtain a composite measure that evaluates the size, access, efficiency and stability dimensions of financial development together.