The aim of this paper is to investigate the impact of financial openness on financial development, growth and output volatility in Turkey. Results of the bounds test reveal that financial openness is in a long run equilibrium relationship with financial development, growth and output volatility. Granger causality tests disclose the existence of unidirectional causality from financial development to financial openness in the long run and from financial openness to output volatility in the short run. Yet, no Granger causality is detected neither from financial openness to growth nor from financial openness to financial development. Results call for further financial development and more conscientious monetary and fiscal policy design for financial openness in Turkey. Key words: International Investment; Long Term Capital Movements; Short Term Capital Movements; Open Economy Macroeconomics; Economic Growth of Open Economies; Bounds test; Granger causalityJel Classification: F21; F32; F41; F43; C32 INTRODUCTIONFinancial openness is achieved by removing impediments to cross-border flow of capital and financial services; by broadening and deepening of cross border financial ties and by removing less favorable treatment to foreign investors and foreign capital (Herrero and Wooldridge, 2007). The cross border financial asset holdings that were less than half of world GDP by 1970s has reached to over 3 times of the world GDP by mid-2000s. Financial openness, according to standard economic theory, is assumed to provide lower cost of financing, efficient allocation of resources, international risk sharing, increase in investments, financial development and growth. The emerging market economies (EMEs) started to open their capital accounts after mid-1980s with the main aim of attracting capital to grow, following the globalization trend prevalent in the developed world.Financial openness, in the mean time, increased the vulnerability of EMEs to financial crises mainly through sudden stops, capital flow reversals and contagion which created "liquidity constraints" in the host country due to "flight to quality (liquidity)" and impaired 1 Corresponding address: İmre Ersoy, Marmara University, European Union Institute, Department of European Union Economics, İmre Ersoy: The impact of financial openness on financial development, growth and volatility in… 34 growth. The pro-cyclical "capital flow bonanzas" driven by the scarcity of capital and high remuneration in EMEs due to their catching up process has been the major culprit of the boom and bust cycles particularly in East Asia in 1997, Russia in 1998 and in Turkey, Argentina, Brazil in 2001 and 2002. The recent global financial turmoil has also led EMEs to face "sudden stops" due to deleveraging of positions in advanced countries.There is no consensus on whether the risks of increased financial integration in terms of more volatility introduced, outweigh the benefits. The openness-growth nexus also provide inconclusive results for the EMEs. However, financial develo...

The article investigates the effects of austerity measures on government debt in Greece, Ireland, Italy, Portugal and Spain (GIIPS) by employing panel cointegration test and using data between 1998 and 2014. The result of empirical analysis shows that tax rate increase on personal income did not result with decrease in government debt. Interest rate and wage that are control variables are also positively related with government debt levels. The result of this empirical analysis suggests that the impact of austerity measures on government borrowing in GIIPS is positive, despite the expectations of certain economic agents.

The aim of this paper is to investigate the impact of banks’ sovereign debt exposures on the financial development of Turkey. Results of the bounds test reveal a long-run and negative equilibrium relationship between banks’ domestic claims on sovereign and financial development, while Granger causality tests display a unidirectional causation from domestic debt to financial depth. Furthermore, stochastic frontier estimations provide evidence for the existence of cost inefficiency channel from government debt portfolios to financial development. The results suggest a need for more conscientious fiscal policy and country specific prudential regulation design for the financial development of Turkey.

The aim of this paper is to investigate the role of different private capital inflows and the exchange market pressure (EMP) on the real effective exchange rate (REER) appreciation of the currency in Turkey. To that end, the paper first investigates the long‐run equilibrium relationship and then employs Granger causality analysis. Results of the bounds test for cointegration within the autoregressive distributed lag (ARDL) modelling approach of Pesaran et al. (2001) reveal level relationship between the diverse private capital inflows, EMP and REER. Granger causality analysis suggests that there is a unidirectional causality running from all the concerned private capital inflows and EMP to REER. The ARDL model shows first that the impact of bank liabilities and portfolio investment liabilities are almost equal, high and positive. Second, foreign direct investment and workers' remittances have a negative but statistically insignificant effect. Third, EMP mitigates REER appreciation of the currency in Turkey. The empirical results suggest that speculative portfolio investment liabilities but particularly bank liabilities with short maturities should be better managed; more flexibility should be introduced to the floating exchange rate regime to avoid loss of competitiveness related with capital inflows; whereas foreign direct investments and remittances should be encouraged.