The Turkish Banking Sector and Regional Economic Growth

Abstract

In previous chapters we have covered the rapid development of Turkish banking, its structure, efficiency, Turkey’s financial crises and the country’s economic developments. No doubt macroeconomic instability, chronic high inflation, political conflicts and financial crises constituted an impediment to economic growth but, despite these obstacles, the Turkish economy and banking sector have grown. The total assets of the Turkish banking sector increased by around 300 per cent, from USD 60 billion to 180 billion between 1990 and 2003. In recent years, there has been an increased amount of interest in the relationship between financial development and economic growth. The issue of finance and growth has been researched globally, but different outcomes have arisen from researches. In this chapter, we aim to take the literature a step further, by linking the development of financial institutions, which are mainly represented by the banking industry, to the economic development that Turkey has experienced recently. However, unlike cross-country studies, we use provincial data to examine the relationship between financial development and economic growth in Turkey’s provinces between 1990 and 2003. First, we offer a brief review of the extensive literature on financial and economic development, then introduce our data and methodology, and later present our results with a discussion.

An earlier version of this chapter was written by Altunbaş and Özben (2003) as a working paper at the Bangor Business School, Bangor University.