Financial Deepening, Economic Growth and The Turkish Financial System (1990-2010)

Financial deepening, the increase in types of financial instruments used in a country and make it available more widely is that these tools. Economic growth in a country where the production capacity, production, and hence is defined as the increase in national income. Or for the growth of the factors of production should increase in the use or development of technology. Effectively fulfill the functions of an advanced financial systems, major investments in small savings of individuals directing their investments by increasing diversity, while minimizing the risks and increase economic growth through the provision of information to investors. This study tested the effects on economic growth financial depth. For this purpose, the impact on economic growth, financial deepening the period 1990-2010 using quarterly data error correction model for the economy of Turkey were investigated. In this study, the relationship between financial deepening and growth in order to determine the existence and direction, is widely used in the literature, Granger causality tests are applied with error correction model. For the test, Turkey 1990 - 2010 years of quarterly data showing that economic growth and financial deepening has been determined, the econometric analysis was done. As an indicator of economic growth, GDP is used. Measure of financial deepening, the money supplies (M2 and M3) to GDP and the ratio of the volume of bank deposit liabilities and domestic credit to GDP ratio indicators are used to. Then the VAR model for indicators of financial depth indicators and economic growth by creating the appropriate lag lengths were determined through various tests. Still not used by level 1 series because they are still differences (all I (1)), they are investigating the direction of the relationship between the long-term co-integration analysis. The cointegration vector error correction models (ECM) have been obtained. Taking into account the length of the delay in, Granger causality tests were conducted for Turkey. Short-term analysis, the error correction term coefficient was found to be statistically significant and negative. Therefore, the resulting deviations between the variables converge to the long-term equilibrium level. According to test results, the analysis for the data belonging to Turkey as a result of information obtained from the discrepancy between financial deepening and economic growth was seen to disappear in the short term. The results of Granger causality analysis determined the direction of causality, that is caused by economic growth, financial deepening has been concluded. Financial deepening measurements Bank Loans / GDP (output), M3 [M2 + Official Deposits Deposits + CBT] / GDP (output), M2 [M1 (currency in circulation + demand deposits) + Time Deposits] / GDP (output), and these rates are affect economic growth appears to have emerged as a result of the econometric analysis.