The impact of development in banking sector and foreign direct investments on economic growth: Sample of Turkey

The fact that the banking sector with a significant place in the financial system is a dynamic sector and economic growth is important for all countries, have made banks indispensable for modern economies. Banks are the driving force behind economic growth by channeling savings to productive investments. Therefore, it is important to examine the impact of the development of the banking sector on economic growth. In this study, the long-term relationship and causality between the development in the banking sector in Turkey and foreign direct investment and economic growth in the 1960-2017 period were analyzed. In the study, in order to detect the stability of the variables, Zivot-Andrews unit root test allowing only one break, and then the cointegration test based on the ARDL approach were conducted. Finally, the causality test was conducted using Toda-Yamamoto causality test method. According to ARDL test results, it was identified that both the banking sector and FDI inflows had a positive effect on the growth in long-term. According to Toda-Yamamoto test results, it was identified that there was a one-way causality from the development of the banking sector to economic growth and from economic growth to FDI inflows. (C) 2018 The Authors. Published by IASE.