Effect of Institutional Quality Factors on Financial Development: The Case of Islamic Cooperation Organization Countries

Year 2021, , 465 - 484, 31.10.2021

Muhammed Kasım , Gökhan Özkul , Dilek Çetin

https://doi.org/10.17233/sosyoekonomi.2021.04.21

Cited By: 1

Abstract

The main aim of this study is to analyse the impact of institutional factors on financial development in Islamic Cooperation Organization Countries. The ratio of domestic credit given to the private sector to GDP is used as a proxy for financial development; income level, broad money, foreign direct investment, trade openness, saving rate, inflation, unemployment rate, exchange rate, final government expenditure, and external debt are utilized as determinants of financial development; corruption index and four sub-levels of economic freedom is used as a proxy for the institutional quality level. According to the linear dynamic panel data estimation by using 1995-2018 panel data, it has been found that the reduction of corruption, the rule of law, regulations effectiveness, and open markets positively affected financial development; however, government size negatively influenced financial development.

Keywords

Financial Development, Institutional Quality Factors, Islamic Cooperation Organization, Panel Data Analysis, Linear Dynamic Panel Model

Kurumsal Kalite Faktörlerinin Finansal Gelişmişlik Üzerindeki Etkisi: İslam İşbirliği Teşkilatı Ülkeleri Örneği

Abstract

Bu çalışmanın amacı, kurumsal kalite faktörlerinin finansal gelişmişlik üzerindeki etkisini İslam İşbirliği Teşkilatı ülkelerinde incelemektir. Finansal gelişmişliğin göstergesi olarak yurtiçindeki finansal sektör tarafından özel sektöre kullandırılan kredilerin GSYH’ye oranı; finansal gelişmişliğin belirleyicisi olarak gelir düzeyi, para arzı, yabancı sermaye net girişi, ticaret açıklığı, tasarruf oranı, enflasyon, işsizlik, döviz kuru, devlet harcamaları ve dış borç; kurumsal kalite düzeyinin göstergesi olarak yolsuzluk endeksi ve ekonomik özgürlük endeksinin dört alt unsuru kullanılmıştır. 1995-2018 yıllarına ait panel veri kullanılarak elde edilen doğrusal dinamik panel veri tahmin sonuçlarına göre; yolsuzluğun azalmasının ve hukukun üstünlüğü, mevzuat etkinliği, piyasaların açıklığının finansal gelişmişliği pozitif, devlet büyüklüğünün ise negatif etkilediği bulunmuştur.

Keywords

Finansal Gelişmişlik, Kurumsal Kalite Faktörleri, İslam İşbirliği Teşkilatı, Panel Veri Analizi, Doğrusal Dinamik Model

References

• Abu-Bader, S. & A.S. Abu-Qarn (2008), “Financial Development and Economic Growth: The Egyptian Experience”, Journal of Policy Modeling, 30(5), 887-898.
• Acemoglu, D. et al. (2006), “Did Medicare Induce Pharmaceutical Innovation?”, American Economic Review, 96(2), 103-107.
• Ağır, H. (2009), “Türkiye’de Finansal Liberalizasyon ve Finansal Gelişme İlişkisinin Ekonometrik Analizi”, Doktora Tezi, Adnan Menderes Üniversitesi Sosyal Bilimler Enstitüsü, Aydın.
• Ahmed, S.M. & M.I. Ansari (1998), “Financial Sector Development and Economic Growth: The South-Asian Experience”, Journal of Asian Economics, 9(3), 503-517.
• Ali, M. et al. (2020), “Financial Inclusion, Institutional Quality and Financial Development: Empirical Evidence from OIC Countries”, The Singapore Economic Review, doi:10.1142/s0217590820420084.
• Arellano, M. & O. Bover (1995), “Another Look at the Instrumental Variable Estimation of Error-Components Models”, Journal of Econometrics, 68(1), 29-51.
• Arellano, M. & S. Bond (1991), “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations”, Review of Economic Studies, 58(2), 277-297.
• Arellano, M. (2003), Panel Data Econometrics, Oxford University Press: New York.
• Ayadi, R. et al. (2015), “Determinants of Financial Development Across the Mediterranean”, in: R. Ayadi et al. (eds.), Economic and Social Development of the Southern and Eastern Mediterranean Countries, Springer, Cham, 159-181.
• Ayaydın, H. & N. Baltacı (2013), “Corruption, Banking Sector, and Stock Market Development: A Panel Data Analysis”. European Journal of Research on Education, (Special Issue), 94-99.
• Babayemi, A.W. et al. (2013), “Empirical Relationship between the Stock Markets and Macroeconomic Variables: Panel Cointegration Evidence from African Stock Markets”, International Journal of Engineering Science and Innovative Technology, 2(4), 394-410.
• Baltagi, H.B. (2013), Econometric Analysis of Panel Data, 5th edition, John Wiley& Sons: England.
• Barro, R.J. (1997), Determinants of Economic Growth: A Cross-Country Empirical Study, Mass.: MIT Press, Cambridge.
• Bayar, Y. (2016), “Institutional Determinants of Stock Market Development in European Union Transition Economies”, The Romanian Economic Journal, (61), 211-226.
• Ben Naceur, S. et al. (2014), “What Drives the Development of the MENA Financial Sector?”, Borsa Istanbul Review, 14(4), 212-223.
• Billmeier, M.A. & I. Massa (2007), “What Drives Stock Market Development in the Middle East and Central Asia: Institutions, Remittances, or Natural Resources?”, IMF Working Papers, No. 7-157, International Monetary Fund.
• Blundell, R. & S. Bond (1998), “Initial Conditions and Moment Restrictions in Dynamic Panel Data Models”, Journal of Econometrics, 87, 115-143.
• Bruinshoofd, A. (2016), “Institutional Quality and Economic Performance”, RaboResearch - Economic Research, <https://economics.rabobank.com/publications/2016/january/institutional-quality-and-economic-performance/>, 12.04.2020.
• Cherif, M. & C. Dreger (2016), “Institutional Determinants of Financial Development in MENA Countries: Financial Development in MENA Countries”, Review of Development Economics, 20(3), 670-680.
• Cherif, M. & K. Gazdar (2010), “Institutional and Macroeconomic Determinants of Stock Market Development in Mena Region: New Results From a Panel Data Analysis”, The International Journal of Banking and Finance, 7(1), 139-159.
• Cojocaru, L. et al. (2016), “Financial System Development and Economic Growth in Transition Economies: New Empirical Evidence from the CEE and CIS Countries”, Emerging Markets Finance and Trade, 52(1), 223-236.
• Creane, S. et al. (2007), “Measuring Financial Development in the Middle East and North Africa: A New Database”, IMF Staff Papers, 53(3), 479-511.
• Drukker, D. (2008), “Econometric Analysis of Dynamic Panel-Data Models Using Stata”, in: Summer North American Stata Users Group Meeting, Gleacher Center, University of Chicago, <https://www.stata.com/meeting/snasug08/drukker_xtdpd.pdf>, 20.02.2020.
• Erim, N. & A. Türk (2005), “Finansal Gelişme ve İktisadi Büyüme”, Kocaeli Üniversitesi Sosyal Bilimler Dergisi, (10), 21-45.
• Garcia, V.F. & L. Liu (1999), “Macroeconomic Determinants of Stock Market Development”, Journal of Applied Economics, 2(1), 29-59.
• Hall, R.E. & C.I. Jones (1999), “Why Do Some Countries Produce So Much More Output Per Worker than Others?”, The Quarterly Journal of Economics, 114(1), 83-116.
• Hussain, F. & D.K. Chakraborty (2012), “Causality between Financial Development and Economic Growth: Evidence from an Indian State”, The Romanian Economic Journal, XV(15), 27-48.
• Ito, H. & M. Kawai (2018), “Quantity and Quality Measures of Financial Development: Implications for Macroeconomic Performance”, Public Policy Review, 14(4), 1-32.
• Johansson, D. & A.S. Kongstad (2013), “The Determinants of Stock Market Development: Implications of a Dynamic Panel Data Model”, MSc in Finance Thesis, School of Economics and Management Lund University.
• Jones, E.L. (1987), The European Miracle: Environments, Economies, and Geopolitics in the History of Europe and Asia, Cambridge University Press.
• Kennedy, P. (2006), Ekonometri Kılavuzu, 5. Baskı. Ankara: Gazi Kitapevi.
• Khalfaoui, H. (2015), “The Determinants of Financial Development: Empirical Evidence from Developed and Developing Countries”, Applied Economics and Finance, 2(4), 1-9.
• Khan, M.A. et al. (2020), “Impact of Institutional Quality on Financial Development: Cross-Country Evidence based on Emerging and Growth-Leading Economies”, Emerging Markets Finance and Trade, 56(15), 3829-3845.
• King, R.G. & R. Levine (1993), “Finance and Growth: Schumpeter Might Be Right”, The Quarterly Journal of Economics, 108(3), 717-737.
• Knack, S. & P. Keefer (1995), “Instutions and Economic Performance: Cross-Country Test Using Alternative Institutional Measures”, Economics and Politics, 7(3), 207-227.
• Kyophilavong, P. et al. (2016), “The Nexus between Financial Development and Economic Growth in Lao PDR”, Global Business Review, 17(2), 303-17.
• Law, S.H. & M.S. Habibullah (2009), “The Determinants of Financial Development: Institutions, Openness And Financial Liberalisation”, South African Journal of Economics, 77(1), 45-58.
• Levine, R. & S. Zervos (1996), “Stock Market Development and Long-Run Growth”, The World Bank Policy Research Department Finance and Private Sector Development Division, 1-24.
• Levine, R. et al. (2000), “Financial Intermediation and Growth: Causality and Causes”, Journal of Monetary Economics, 46(1), 31-77.
• Lynch, D. (1996), “Measuring Financial Sector Development: A Study of Selected Asia-Pacific Countries”, The Developing Economies, 34(1), 1-27.
• Mauro, P. (1995), “Corruption and Growth”, The Quarterly Journal of Economics, 110(3), 681-712.
• Mbulawa, S. (2015), “Determinants of Financial Development in Southern Africa Development Community (Sadc): Do Institutions Matter?” European Journal of Accounting Auditing and Finance Research, 3(6), 39-62.
• Nawaz, S. et al. (2014), “The Impact of Institutional Quality on Economic Growth: Panel Evidence”, The Pakistan Development Review, 53(1), 15-31.
• Nguyen, Y.H.D. & D.T. Thi Ha (2021), “The Effect of Institutional Quality on Financial Inclusion in ASEAN Countries”, Journal of Asian Finance, Economics and Business, 8(8), 421-431.
• North, D.C. (1981), Structure and Change in Economic History, Norton.
• Okpara, G.C. et al. (2018), “Econometrics Analysis of Financial Development and Economic Growth: Evidence from Nigeria”, Global Journal of Management and Business Research, 18(2), 1-5.
• Olson, M. (1982), The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities, Yale University Press.
• Öztürk, N. vd. (2010), “Gelişmekte Olan Piyasalarda Finansal Derinleşme ve Büyüme İlişkisi: Panel Veri Analizi”, ZKÜ Sosyal Bilimler Dergisi, 6(12), 95-119.
• Raza, S.H. et al. (2014), “Exploring the Determinants of Financial Development (Using Panel Data on Developed and Developing Countries)”, Journal of Finance and Economics, 2(5), 166-172.
• Rodrik, D. et al. (2004), “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development”, Journal of Economic Growth, 9(2), 131-165.
• The Heritage Foundation (2020), 2020 Index of Economic Freedom, <https://www.heritage.org/index/explore?view=by-region-country-year&u=637264682744903681>, 23.01.2020.
• The World Bank (2020), “World Development Indicators DataBank”, World Development Indicators, <https://databank.worldbank.org/source/world-development-indicators>, 22.01.2020.
• Transparency International (2020), “Research - CPI - Overview”, Corruption Perceptions Index, <https://www.transparency.org/research/cpi/cpi/0>, 25.01.2020.
• Windmeijer, F. (2005), “A finite sample correction for the variance of linear efficient two-step GMM estimators”, Journal of Econometrics, 126, 25-51.
• Wooldridge, J.M. (2001), Econometric Analysis of Cross Section and Panel Data, The MIT Press: Cambridge.
• World Economic Forum (2012), The Financial Development Report 2012, New York: World Economic Forum.
• Yartey, C.A. (2007), “Well-Developed Financial Intermediary Sector Promotes Stock Market Development: Evidence from Africa”, Journal of Emerging Market Finance, 6(3), 269-289.
• Yartey, C.A. (2008), “The Determinants of Stock Market Development in Emerging Economies: Is South Africa Different?”, IMF Working Papers, Working Paper. No. 08/3, 1-33.
• Yüce-Akıncı, G. vd. (2014), “Finansal Gelişmişliğin Makroekonomik Belirleyicileri: Türkiye İçin Bir VAR Modeli”, Uluslararası Alanya İşletme Fakültesi Dergisi, 6(1), 1-15.