Financial Reforms and the Decomposition of Economic Growth: An Investigation of the Changing Role of the Financial Sector in Turkey

Abstract

Turkey undertook a far-reaching structural adjustment programme in 1980. As an integral element of this programme, financial liberalisation aimed at increasing domestic savings and directing them efficiently towards financing investment projects, which will be likely to have positive impacts on economic growth. After 20 years the performance of these reforms in financial markets is still a matter of concern among academics. The aim of this paper is to examine the role of the financial sector in the whole economy and to assess the sources of gross output of the sector. By doing that we are able to connect financial reforms with different source of growth, and analyse the impacts of reforms on the production of financial services in the pre-and pro-liberalisation periods. To accomplish this aim, we introduce a new methodology, which is based upon the Leontief's input-output models. The results imply that the production sector of the Turkish economy has increasingly become independent from the use of financial service produced by the banking and insurance sector particularly in the post-reform period. JEL Classification: D57, F14, O16, R15

Trade Liberalization, Financial Development and Economic Growth in The Long Term: The Case of Turkey

“…In addition, Yeldan (1997), Lewis (1992) and Karabulut and D em iroz (2002) exam ined the im pact of financial liberalization/developm ent on econom ic growth in the fram ework of the CGE m odels. Finally, Guncavdi and Kucukciftci (2005) investigate the role of financial reform s on econom ic growth with a m ethodology based on the Leontief's input-output m odel and conclude that the production sector of the econom y has increasingly becom e independent from the use of financial services produced by the banking system in the post-reform period.…”