Government debt vs. financial depth dilemma in developing countries: The case of Turkey

Ersoy, İmre

doi:10.1556/aoecon.62.2012.3.3

Cited by 3 publications

(5 citation statements)

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“…These specifications assume that the coefficients γ and β 1 in equation are zero. The results are in line with previous literature (Emran and Farazi ; Ersoy ; İlgün ). There are significant crowding‐out effects of public sector credit on private sector credit.…”

Section: Resultssupporting

confidence: 93%

“…These variables contain too much irrelevant information to be correlated with financial development. This study uses the ratio of credit to government and state‐owned enterprises to GDP ( PUB ) as the main independent variable (similar to the work of Emran and Farazi ; Hauner ; and Ersoy ). This indicator directly measures the total amount of bank credit to the public sector, and it can demonstrate behaviour similar to the development of the banking sector.…”

Section: Data and Variablesmentioning

confidence: 99%

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How Financial Freedom and Integration Change Public Debt Impact on Financial Development in the Asia‐Pacific: A Panel Smooth Transition Regression Approach

Bui¹

2018

Australian Economic Review

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This study investigates the non-linear effect of fiscal policy (measured by total domestic public sector debt) on the level of financial development, using a balanced panel of 22 economies in the Asia-Pacific region. Governments in less developed financial institutional infrastructure (for instance, emerging markets) tend to abuse their power by intervening in the domestic debt market. This study shows that better financial institutional infrastructure helps to discipline governments. The results suggest a negative effect of domestic public sector debt on financial development, but only at low level of financial freedom and integration. Higher financial freedom and financial integration would reduce the crowding-out effect of domestic public sector debt.

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Section: Resultssupporting

confidence: 93%

Section: Data and Variablesmentioning

confidence: 99%

How Financial Freedom and Integration Change Public Debt Impact on Financial Development in the Asia‐Pacific: A Panel Smooth Transition Regression Approach

Bui¹

2018

Australian Economic Review

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“…Fourth, it seems that it should be spotted by the policy makers that Turkey needs to have more developed financial markets particularly due to the empirical findings of Köse et al (2010), who assert that a certain threshold level of financial development is necessary for financial openness to impact the growth of a country positively. To that end, fiscal incentives may be introduced to limit the increasing shares of local currency denominated domestic public debt in Turkish banks' portfolios that negatively affect financial development (Ersoy, 2011). Last but not least, the only long run causality detected in this study shows that the level of financial development attained after opening up of the financial markets stimulates FDI and net portfolio investment inflows to Turkey.…”

Section: Concluding Remarks and Policy Implicationsmentioning

confidence: 74%

The Impact of Financial Openness on Financial Development, Growth and Volatility in Turkey: Evidence From the Ardl Bounds Tests

Ersoy

2011

Economic Research-Ekonomska Istraživanja

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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...

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“…Previous studies show that fiscal deficit is negatively related to financial development (Alenoghena, 2015;Caballero & Krishnamurthy, 2004;Evans, 2020), while Gnimassoun & Do Santos (2021) found a positive effect. It has been confirmed that domestic debt drives down financial depth (Alenoghena, 2015;Ersoy, 2012;Hauner, 2006;Ismihan & Ozkan, 2012;Mun & Ismail, 2015;Umaru et al, 2023). However, Kutivadze (2011) found the contrary, as the author indicates that debt positively influences financial development.…”

Section: Discussionmentioning

confidence: 98%

“…Similarly, Ersoy (2012) found the impact of banks' sovereign debt exposures on Turkey's financial development. The findings reveal that high domestic public debts in Turkish banks' portfolios negatively affect financial development.…”

Section: Literature Reviewmentioning

confidence: 94%

Fiscal Policy and Financial Depth in Nigeria: An Application of Threshold Regression Modeling

Baita,

Abdullahi,

Muhammad

2023

IJFEB

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The study examines Nigeria's non-linear relationship between fiscal policy and financial depth. In essence, the study is concerned with the impacts of fiscal deficit, domestic debt, and government expenditure on financial depth. The study uses four indicators of financial deepening: liquid liabilities, credit to the private sector, deposit money banks’ assets and financial system deposits (all indicators are expressed as percent of GDP). In particular, the government is the threshold variable expected to have a threshold effect on Nigeria's financial depth. The study covers 60 years between 1961 and 2020 and employs a threshold regression model to achieve the research objectives. A linear regression model is employed for the robustness test by including the government expenditure square to test the significance of non-linearity. The study's findings establish fiscal policy's significance in driving financial depth. Beyond the threshold of 8.11 percent, government expenditure significantly increases financial deepening. This is consistent across the indicators of financial depth and the overall financial depth. It further shows the important role of fiscal deficit and domestic debt in deepening the financial market as the threshold value exceeds 8.11 percent. However, fiscal may have a negative, though insignificant, effect on financial depth when the threshold of government expenditure is no more than 8.11%. Real per capita is also a key factor in promoting financial depth. Therefore, higher income is important for a financially deeper financial system. Therefore, attaining minimum government expenditure is crucial for accelerating financial development in Nigeria.

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Government debt vs. financial depth dilemma in developing countries: The case of Turkey

Cited by 3 publications

References 30 publications

How Financial Freedom and Integration Change Public Debt Impact on Financial Development in the Asia‐Pacific: A Panel Smooth Transition Regression Approach

How Financial Freedom and Integration Change Public Debt Impact on Financial Development in the Asia‐Pacific: A Panel Smooth Transition Regression Approach

The Impact of Financial Openness on Financial Development, Growth and Volatility in Turkey: Evidence From the Ardl Bounds Tests

Fiscal Policy and Financial Depth in Nigeria: An Application of Threshold Regression Modeling

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