Re-examining the impact of financial intermediation on economic growth: evidence from Turkey

Abstract

PurposeThis study seeks to investigate the impact of financial intermediation on economic growth in Turkey using annual data spanning 1970–2017.Design/methodology/approachBased on the results of the augmented Dickey–Fuller and Phillips–Perron unit root tests for stationarity, the authors employ the Autoregressive Distributed Lag (ARDL) bounds testing to cointegration to establish the long-run impact of financial intermediation alongside other control factors on economic growth. The study also examines the short-run relationship between financial intermediation and economic growth by estimating the Error Correction Model (ECM).FindingsThe authors’ findings indicate that financial intermediation significantly influences economic growth in both short and long run. However, the effect is positive only in the short run, lending support to the supply-leading hypothesis. Regarding the control variables, the authors observe that while financial openness shows a positive significant impact on economic growth in the long run, gross fixed capital formation matters only in the short run. The results further infer that regardless of the time period, inflation impedes economic growth.Originality/valueIn the empirical analysis of the relationship between financial intermediation and economic growth, financial intermediation is always measured using a single variable. The authors argue that such studies could produce bias and misleading results given that a single proxy does not adequately reflect financial intermediation activities. Likewise, such findings may delude policy implementation. To provide a more vivid and robust analysis, the authors employ the Principal Component Analysis (PCA) to construct a composite index for financial intermediation based on three broad measures. The researchers’ are unaware of any study on the financial intermediation–economic growth nexus using a composite index of financial intermediation. Thus, this paper fills this lacuna in the literature.

The effect of taxation on sustainable development goals: evidence from emerging countries

“…Moreover, Table 2 also represents the pairwise Pearson correlations between employed variables. The correlation between the independent variables is less than 80% proves that the issue of multicollinearity is not undermining our findings ( Yakubu et al., 2021 ).…”

“…The index ranges from 0 to 1, where a higher value indicates more financial openness ( Hussain et al., 2021 ; Rahman et al., 2021 ; Romer and Romer, 2010 ) Political Stability PSI The political stability index reflects the possibility of politically-motivated violence, including terrorism. Variable ranges from −2.5 to 2.5, with higher values indicating more political stability ( Rahman et al., 2021 ; Yakubu et al., 2021 ) Source: Developed by the authors. …”

Making a digital and financial leap towards sustainable tourism in Ghana

“…Prior to the ARDL estimation, we assess the level of integration of the variables by using the Phillips–Perron (PP) unit root test which is consistent with the studies by Amaefula (2021), Firat (2016), Yakubu, Abokor, and Gedik Balay (2021). To apply the ARDL technique, the variables are required to be integrated at level (I(0)) or first difference (I(1)).…”

“…In addition, there should be no serial correlation or heteroscedasticity, meaning that the residuals of the model should not be correlated with each other and the variance of the residuals should be constant across all observations. Prior to the ARDL estimation, we assess the level of integration of the variables by using the Phillips-Perron (PP) unit root test which is consistent with the studies by Amaefula (2021), Firat (2016), Yakubu, Abokor, and Gedik Balay (2021). To apply the ARDL technique, the variables are required to be integrated at level (I(0)) or first difference (I(1)).…”

Modelling the financial intermediation function of banks and economic growth in sub-Saharan Africa

“…Using the ARDL model with data extending from 1978 to 2015, Tursoy and Faisal (2018) demonstrated that deposit growth (a measure of financial depth) influences economic growth in Cyprus. Using annual data from 1970 to 2017, Yakubu et al (2021) examined the effect of financial intermediation on economic growth in Turkey. To determine the long-run and short-run relationship between the variables, the authors applied the ARDL bounds testing to cointegration.…”