ANALYSIS OF THE INTERACTION BETWEEN FINANCIAL LIBERALIZATION AND ECONOMIC GROWTH IN TURKISH ECONOMY WITH ARDL METHOD

Yıl 2012, Cilt: 12 Sayı: 23, 379 - 413, 01.06.2012

Şerife Özşahin

Öz

The financial liberalization hypothesis which owes its theoretical basis to McKinnon
(1973) and Shaw(1973) with their studies independent from each other is basically built
upon the argument of promoting savings with positive real interest rates and supporting
the growth rates. It can be asserted that the financial liberalization policies, which
McKinnon (1973) and Shaw (1973) suggested to be implemented on account of their
positive effects, are also supported by several other developments. Waves of liberalization
becoming more and more popular in developed and developing countries especially after
the 1980s, developments taking place in information and communication sectors and
technological innovations, facilitate the free capital movements and the increase in the
financial instruments which can be used in financial transactions have made it possible for
foreign investors to do risk diversification leading to the acceleration of financial
liberalization movements.
When financial liberalization practices are handled in two different categories, which
are internal and external, it can be clearly seen that internal financial liberalization
predominantly covers such practices as allowing the determination of nominal interest
rates under market conditions in the national finance system, reducing controls in the
distribution of the credit and restrictions on entry into the financial system. In external
financial liberalization which has a broader scope, however, the residents are allowed to
perform activities in international financial markets as the foreigners are allowed to
acquire assets in the national finance system and all restrictions in trading over the foreign
currency are being removed. Basic gain expected to occur after these practices is the
provision that the economic growth gains a stable structure by ensuring economic
efficiency as a result of the expansion in the savings volume along with the utilization of
resources in optimal investment projects.
Practices which facilitate the inclusion of foreign banks in the national finance system
with the external financial liberalization will enable international financial standards and
technology along with foreign finance institutions to enter the country and serve the
economic development. Investors who find the opportunity to diversify their portfolios in
the international markets and distribute their risks among various alternative investment
instruments will be able to minimize their consumption and income fluctuations and
develop a preventive mechanism for sudden depreciations that may occur in their total
assets.
Projections of this hypothesis which states that developments in line with economic
efficiency and stable growth shall take place in such conditions where the government
does not interfere with the markets to determine the interest rates have been shaded by
financial crisis experiences in the developing countries by the 1980s and has led to the
perception of financial liberalization practices as the main cause of financial instability
and crises in many countries. In this respect, the financial liberalization hypothesis has
been heavily criticized by neo-structuralists and post-keynesians on such grounds that the
increase in the interest rates would cause negative effects on savings, investments and the
growth rates.
In their criticism of the financial liberalization hypothesis, neostructuralists have
considered the transfer of resources from unorganized financial markets to the banking sector as a development which impairs the loan supply since the official banking sector is
subject to required reserves and, thus, underlined the fact that the positive effects expected
from financial liberalization will not happen. Unorganized markets which function as
intermediaries between the saver and the investor and perform activities outside the
official banking sector were considered more flexible and competitive financial structure
by Taylor (1983) as they are not obligated to furnish the required reserve deduction which
the official banking sector is subject to. Another member of the structuralist group,
Wijnbergen states that profitable investments with high capital return have a more
important function in economy than time deposits have and developments in the banking
sector will not produce such expanding effects financial deepening and economic growth
as promoted by financial liberalization theorists.
The criticism of the financial liberalization hypothesis by post-keynesian view
concentrated on the effective demand, a determinant of economic growth and the savings
were accepted to be a function of income levels rather than the interest rates. Postkeynesians
who state that the increase in savings would not imply any expansion in the
volume of investment and growth focus on the fact that investments can also be financed
through loans provided by the banking sector apart from individual savings and that the
increase in the interest rate will reduce the effective demand by producing negative effects
on the investment decision. In addition, the information asymmetries in the financial
markets and the presence of the externalities and market failures are considered to be
factors which may cause instability and fragility in the financial system.
Microeconomics-oriented criticisms of the financial liberalization hypothesis by
Stiglitz and Weiss (1981) and Stiglitz (1994) highlight the fact that market intervention is
inevitable to deal with such problems as information asymmetries and adverse selection
faced in financial markets and it is stated that such interventions will reduce the cost of
capital and bring with in the results which may enable efficiency in the resource
allocation. While Stiglitz and Weiss (1981), with an attitude to support market
intervention, consider the government a structure with disciplinary and objective qualities,
Fry (1997) points out that intervention may produce positive results to deal with market
failures while intervention to a market with no such problems will predominantly produce
negative effects.
In this study, which analyzes the effect of the financial liberalization experience of
Turkish economy on the economic growth using econometric methods, three different
models were estimated in order to determine the direction of interaction. Variables such as
institutional quality, credit to private sector, education level and trade openness which
were used as control variables in each model were fixed and only the financial
liberalization indicators were diversified; therefore it was sought to investigate the effect
of financial liberalization on the economic growth rates. Studies on this subject in the
literature put emphasis on de facto and de jure criteria in order to form financial
liberalization indicators and stated the superior aspects of each one to another. This study
used de facto variables and the quarterly data of which can be accessed and, by following
the methodology in studies by Kraay (1998), Edison et al. (2002), Lane and MilesiFerretti
(2006), variables such as financial capital flow, financial capital stock and
financial capital inflow were created to represent financial liberalization.
The results of the econometric application for quarterly data in the period of 1989.Q1-
2010.Q3 were presented in the part of econometric analysis. Accordingly, the ADF, PP
and KPSS unit root tests were applied without regard to the presence of a possible structural break in variables, and then the series were tested for stationary using ZivotAndrews
unit root test which takes structural breaks into account. Short- and long-term
coefficient estimations were made using ARDL method (Auto-Regressive Distribution
Lag) which enables applicability in series which exhibit different levels of stationary in
order to determine the long term relationships between variables since the series have
mixed stationary levels.
The results of the econometric analysis show that all of the three different indicators
of financial liberalization produce positive effects on growth rates. Trade openness which
is a criterion by which a country's level of integration with the world economy was
determined to be a variable positively affecting the growth rate in all estimated models. In
addition, the education level variable which was measured as the training period
representing the human capital is in positive interaction with the growth rate in all models.
The institutional quality variable which has been described in theoretical explanations as a
significant catalyst by which financial liberalization will have a positive effect on growth
has also an expansive effect on the growth rate. Taken together with Klein’s (2007)
finding that the positive effect of financial integration on growth will appear in countries
where institutional quality is at a medium level, this positive interaction between
institutional quality and growth can be interpreted as that the institutional quality
represented by rule of law, bureaucratic quality and corruption criteria in Turkish
economy has fallen below the level of developed countries.

Anahtar Kelimeler

Financial Liberalization, Economic Growth, Bound Test and ARDL Method

TÜRKİYE EKONOMİSİNDE FİNANSAL LİBERALİZASYON VE EKONOMİK BÜYÜME ETKİLEŞİMİNİN ARDL YÖNTEMİ İLE ANALİZİ

Öz

Bu çalışmada Türkiye ekonomisinde 1980’li yıllar sonrasında uygulanan finansal liberalizasyon politikalarının ekonomik büyüme oranları üzerinde yol açtığı etki, 1989.Q1-2010.Q1 dönemi kapsamında çeyrek dönemlik veriler yardımıyla belirlenmeye çalışılmıştır. Bu amaçla finansal liberalizasyonun de facto göstergeleri olarak tanımlanan üç farklı değişken kullanılarak finansal liberalizasyon ve ekonomik büyüme etkileşimi sınır testi ve ARDL yöntemiyle analiz edilmiştir. Finansal liberalizasyon politikalarının başarısının ülkenin finans sektörünün gelişmişliği, kurumsal kalite düzeyi, dışa açıklık ve eğitim seviyesi göre farklılaştığı dikkate alınarak bu değişkenlerin yer aldığı regresyonlar sonucu uzun ve kısa dönem katsayılar elde edilmiştir. Elde edilen analiz sonuçları finansal liberalizasyonun ve kurumsal kalite, eğitim düzeyi ve dışa açıklık değişkenlerinin incelenen zaman diliminde ekonomik büyüme oranları üzerinde pozitif yönlü etkileri olduğunu göstermektedir.

Anahtar Kelimeler

Finansal Liberalizasyon, Ekonomik Büyüme, Sınır Testi ve ARDL Yöntemi