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Government debt vs. financial depth dilemma in developing countries: The case of Turkey

Author

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  • İmre Ersoy

    (Marmara University European Union Institute, Department of European Union Economics, Göztepe Campus 347-22 Kadıköy, İstanbul, Turkey)

Abstract

The aim of this paper is to investigate the impact of banks’ sovereign debt exposures on the financial development of Turkey. Results of the bounds test reveal a long-run and negative equilibrium relationship between banks’ domestic claims on sovereign and financial development, while Granger causality tests display a unidirectional causation from domestic debt to financial depth. Furthermore, stochastic frontier estimations provide evidence for the existence of cost inefficiency channel from government debt portfolios to financial development. The results suggest a need for more conscientious fiscal policy and country specific prudential regulation design for the financial development of Turkey.

Suggested Citation

  • İmre Ersoy, 2012. "Government debt vs. financial depth dilemma in developing countries: The case of Turkey," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 62(3), pages 345-362, September.
    • Handle: RePEc:aka:aoecon:v:62:y:2012:i:3:p:345-362
    Note: The author gratefully acknowledges the comments received at the International Conference on “Global Trends in the Efficiency and Risk Management of Financial Services” organized by the Management School of Leicester University (14–15 November 2009) and is indebted to the invaluable comments of the two anonymous referees. Usual disclaimers hold.
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    Citations

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    Cited by:

    1. Duy‐Tung Bui, 2018. "How Financial Freedom and Integration Change Public Debt Impact on Financial Development in the Asia‐Pacific: A Panel Smooth Transition Regression Approach," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(4), pages 486-501, December.

    More about this item

    Keywords

    banks; financial markets; international lending and debt problems; economic growth; bounds test; Granger causality; cost efficiency; Turkey;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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