Examining Financial Development and Depth in the Context of Country Groups with the GMM Method

Financial development refers to the efficiency, diversity and inclusiveness of financial institutions and markets, while financial depth is defined as the ratio of the size of financial assets to economic size. In order for the funds accumulated in the financial system in a country to be transferred to the real sector and used effectively and efficiently, the level of financial deepening as well as financial development has become important. The main determinants of financial development and financial deepening are analyzed using the GMM method with a data set covering the period 1998-2022 and 60 countries. In this context, while the increase in the consumer price index has a negative effect in line on the mentioned variables with the literature, the upward movement in the level of investment, stock market value, stock market trading volume, external openness, real interest rate and rule of law index positively affect these two indicators. The study examines financial depth and financial development in terms of both developed and developing countries as well as country classification by income groups, and reveals the importance of capital markets in terms of market capitalization and market trading volume. As a result, the largest positive contribution for the country groups including Türkiye comes from investment value and market capitalization.