Analysis of the Effect of Developments in Banking Sector on the Economic Development: The Case of Turkey

Banks, which are the building blocks of the financial system, manage the loanable fund supply and demand in economics through their “mediation” function. Enlargement of financial market volume also brings increase in national income and employment. Other important function of the banks in macroeconomic aspect is the fact that the provided funds to the financial system guide to sectors which will provide the most value to the economic growth. In this respect, existence of a strong financial system depends on a healthy growing and developing financial sector. In a country, such as Turkey, which has a saving gap, the importance of the banking sector on best usage of financial savings and procurement of economic growth through a stable economic development is undeniable.

In this work, based on this point of view; the relationship between the developments in the banking sector and the economic development, within Turkey’s economy, is tested by regression analysis method. Within this work, Human Development Index (HDI), as a dependent variable, is used to define the economic development. In order to show the development of the banking sector, independent variables, part of banking sector in finance sector (BGY), monetary easing (M2GY), development in the total credit volume of the banking sector (KGY), development in the total deposits volume of the banking sector (MGY) and development in the total assets of the banking sector (AGY) variables are used. As a result of the regression analysis and performed tests, it is concluded that HDI variable will increase by 14% if AGY variable increases by 1%, HDI variable will increase by 18% if KGY variable increases by 1%, HDI variable will increase by 17% if MGY variable increases by 1%, HDI variable will increase by 27% if BGY variable increases by 1% and HDI variable will increase by 21% if M2GY variable increases by 1%. As a result of the literature work and the analysis performed, it is concluded that the developments in the banking sector positively effects the economic development in Turkey.