Causal Relationships between Financial Development, Trade Openness and Economic Growth: The Case of Turkey

Abstract

Problem statement:The main objective of this study was to examine the causality relations between financial development, trade openness and economic growth (GDP) for the Turkish economy. Approach: In time series context, recently developed econometric techniques were used: namely the Augmented Dickey-Fuller (ADF) for unit root, Johansen and Juselius (JJ) for cointegration and Granger causality test for causal relationships. Results: The findings of the study showed that while trade openness has a positive effect, financial development has a negative effect on growth. Conclusion: Moreover, the Granger causality test results revealed the presence of bicausal relationship between financial development, trade openness and growth indicating that economic policies aimed at financial development and trade openness have a statistically significant impact on economic growth.

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