This study aims to emphasize the importance of developing financial institutions and markets to support sector-specific growth for Turkey.
To measure financial development, this study uses a newly constructed financial development index developed by Svirydzenka (2016), which encompasses two categories: the depth, accessibility and efficiency of financial institutions (FII) and financial markets. Utilizing the Autoregressive Distributed Lag approach introduced by Pesaran and Shin (1999) and Pesaran et al. (2001), this study employs the error correction model to explore short-term dynamics, using annual data spanning from 1985 to 2021.
The findings reveals that financial institutions exert a negative impact on agricultural sector both in the short and long term. On the other hand, the FII index demonstrates a negative impact on services sector in the long-run, while in the short term, it exhibits a positive and statistically significant impact.
Recognizing that various sectors exhibit differing degrees of financial dependency, the analysis shifts the focus from aggregate output to a more nuanced sectoral-level examination. The findings of this study offer valuable insights for policymakers regarding the strategic allocation of resources effectively considering sectoral growth.
