Structural breaks, financial globalization and financial development: Evidence from Turkey

Abstract

Purpose - The Mishkin’s hypothesis suggests that globalization appears to be a vital factor in stimulating the development of financial system. The study examines this hypothesis for Turkish economy over the period 1970-2017. In other words, the study intensifies on the link between financial globalization and financial development by integrating economic growth, inflation and natural resource rent as additional determinants into the financial development specification. Methods - The Ng-Perron and Vogelsang-Perron unit root tests are used to check the stationarity of variables. The cointegration analysis is performed by using the Hatemi-J and ARDL bounds testing procedures. Findings - The main empirical results show that the series are cointegrated under the structural breaks; in the long run financial globalization and economic growth increase financial development while inflation and natural resource rent negatively affect financial development. There exist a unidirectional causality running from financial globalization and economic growth to financial development while there is a bidirectional causality between inflation and financial development, natural resource rent and financial development. Implications - The empirical findings can present important recommendations for policy makers. Originality - There are very few time-series studies which include Turkey economy and structural breaks. Because this study is made. Keywords. Financial globalization, financial development, economic growth. JEL Classification Codes - F60, E44, O16