Investigation of Causality Relations Between Developments in Participation Banking and Economic Growth in Turkey: Toda-Yamamoto Approach

Abstract

The contribution and impact of developments in banking and finance to economic growth has been discussed in the literature for many years and various empirical analyzes are made regarding this. Four different theoretical approaches have been developed on the subject, which are stated as supply-oriented, demand-driven, interdependence and neutrality hypothesis. The analyzes carried out to test these theoretical approaches give different results due to different conditions. For this reason, an agreed approach has not been formed. However, the general trend is that financial development and deepe-ning have some effects on economic growth. Islamic banks, which are desc-ribed as alternative or complementary, operating in the financial sector, are likely to yield similar results. It is observed that empirical studies that examine the effects of develop-ments in the field of participation banking on economic growth in Turkey have started to gain importance especially in recent years. The period range dealt with in these studies generally covers time series data starting from the 2000s. It is noteworthy that the variables taken into account in this type of bank are mostly deposits collected and loans granted. In addition to these, it was tested whether variables such as total assets, own funds, net operating profits have a significant relationship on economic growth. In these studies, which tests such as Johansen cointegration, ARDL boundary test, Vector error correction models (VECM) and Granger causality, it has been investigated whether there is a short / long-term relationship and causality between the developments in participation banking and economic growth. According to the results obtained, again, the general trend is that the developments in the participation banking field have a positive effect on economic growth and there is a causal relationship between them. It can be easily said that these types of banks in Turkey are still in the development phase and that the restructuring in this area will contribute to sustainable economic growth. Considering the empirical studies that examine the relationship between the developments in Islamic banking and economic growth on the basis of other country and country groups, it is seen that the literature has started to take shape in recent years. Studies on countries such as Malaysia, Indonesia, and Pakistan, where activities in Islamic banking are concentrated, are gaining weight. In these studies, the short / long term effects of the total loans, which are mostly granted, on the GDP and the causality relations are examined. Si-milar to the findings obtained in Turkey, meaningful relationships have been determined that the activities in the field of Islamic banking have a share in economic growth. In this respect, studies on Turkey and other countries give almost compatible results. The increase in activities in Islamic banking and the effort to gain a significant place in financial development necessitate the examination and questioning of the effects of these types of banks in every field. In this respect, it is expected that the activities in the field of Islamic ban-king will become increasingly popular among the fields of study. It should be noted that the literature on the effects of Islamic banking activities on economic growth compared to traditional banks is much more recent. Studies based on the effects of its activities in Turkey are extremely limited. It is expected that this study, conducted in the case of Turkey, will contribute to this gap in the literature. The aim of this study is to examine the causality relationship between funds collected and loans granted in Turkey between 2010 and 2020, representing the developments in the field of Islamic banking, with economic growth. For this, Toda-Yamamoto causality test was used, which allows analysis according to all kinds of stationarity levels of the series among various causality tests, and the findings obtained were interpreted. According to the findings obtained from the Toda-Yamamoto causality test, the existence of a one-way causality from total consumer loans to GDP was determined. However, no causality relationship could be determined between real person participation accounts and GDP. Considering that the weighted variable used to represent the developments in Islamic banking in the literature is "total loans offered to the private sector and consumers", the existence of causality from the total consumer loans identified in the study to GDP is shows the effect of consumer loans on economic growth.