Financial Openness, Financial Stability, and Macroeconomic Performance in Turkey: A Comparative Perspective

Chapter

Abstract

Although economic theory argues that financial openness promotes economic growth, several experiences in developing countries do not support this theoretical reality. Turkish experience is one of the best examples since Turkey suffered three financial crises in 1994, 1998–1999, and 2000–2001, following the liberalization policies implemented through the 1980s, but managed to improve economic outcomes dramatically in the post-2001 period. This is mainly due to more effective fiscal and monetary management, strengthened banking regulation, and conservative banking practices pursued over the last decade and a half that significantly contributed to greater financial stability. Hence, this paper argues that to raise the potential benefits of financial openness, particularly in emerging countries, it should be implemented in a well-designed, effective supervisory and regulatory framework and in a sequenced manner.

Keywords

Financial openness Financial stability Crisis Growth Turkey 

JEL Codes

E44 G01 G18 O4 

References

  1. Aghion, Philippe, Philippe Bacchetta, and Abhijit Banerjee. 2004. Financial Development and the Instability of Open Economies, NBER Working Paper 10246. Cambridge, MA: NBER.CrossRefGoogle Scholar
  2. Aizenman, Joshua. 2004. Financial Opening: Evidence and Policy Options. In Challenges to Globalization: Analyzing the Economics, ed. Robert E. Baldwin and L. Alan Winters, 473–497. Chicago: University of Chicago Press.CrossRefGoogle Scholar
  3. Andersen, Thomas B., and Finn Tarp. 2003. Financial Liberalization, Financial Development and Economic Growth in LDCs. Journal of International Development 15: 189–209.CrossRefGoogle Scholar
  4. Arac, Aysen, and Suleyman Kutalmis Ozcan. 2014. The Causality Between Financial Development and Economic Growth: The Case of Turkey. Journal of Economic Cooperation and Development 35: 171–198.Google Scholar
  5. Ari, Ali, and Raif Cergibozan. 2017. Sustainable Growth in Turkey: The Role of Trade Openness, Financial Development, and Renewable Energy Use. In Industrial Policy and Sustainable Growth, ed. Murat Yulek, 1–21. Singapore: Springer.Google Scholar
  6. Arteta, Carlos, Barry Eichengreen, and Charles Wyplosz. 2001. When Does Capital Account Liberalization Help More Than It Hurts, NBER Working Paper 8414. Cambridge, MA: NBER.CrossRefGoogle Scholar
  7. Baltagi, Badi H., Panicos O. Demetriades, and Siong H. Law. 2009. Financial Development and Openness: Evidence from Panel Data. Journal of Development Economics 89: 285–296.CrossRefGoogle Scholar
  8. Barro, Robert J. 2003. Determinants of Economic Growth in a Panel of Countries. Annals of Economics and Finance 4: 231–274.Google Scholar
  9. Beck, Thorsten, Ross Levine, and Norman Loayza. 2000. Finance and the Sources of Growth. Journal of Financial Economics 58: 261–300.CrossRefGoogle Scholar
  10. Bekaert, Geert, Campbell R. Harvey, and Christian Lundblad. 2005. Does Financial Liberalization Spur Growth? Journal of Financial Economics 77: 3–55.CrossRefGoogle Scholar
  11. Boratav, Korkut, and Erinc Yeldan. 2006. Turkey, 1980–2000: Financial Liberalization, Macroeconomic (In)stability, and Patterns of Distribution. In External Liberalization in Asia, Post-socialist Europe, and Brazil, ed. Lance Taylor, 417–455. Oxford: Oxford University Press.CrossRefGoogle Scholar
  12. Bussiere, Mathieu, and Marcel Fratzscher. 2008. Financial Openness and Growth: Short-Run Gain, Long-Run Pain? Review of International Economics 16: 69–95.Google Scholar
  13. De Gregorio, Jose, and Pablo E. Guidotti. 1995. Financial Development and Economic Growth. World Development 23: 433–448.CrossRefGoogle Scholar
  14. Deidda, Luca, and Bassam Fattouh. 2002. Non-Linearity Between Finance and Growth. Economics Letters 74: 339–345.CrossRefGoogle Scholar
  15. Demirguc-Kunt, Asli, and Enrica Detragiache. 1998. The Determinants of Banking Crises: Evidence from Developing and Developed Countries. IMF Staff Papers 45: 81–109.CrossRefGoogle Scholar
  16. Edison, Hali J., Michael W. Klein, Luca A. Ricci, and Torsten Slok. 2004. Capital Account Liberalization and Economic Performance: Survey and Synthesis. IMF Staff Papers 51: 220–256.Google Scholar
  17. Edwards, Sebastian. 2001. Capital Mobility and Economic Performance: Are Emerging Economies Different? NBER Working Paper 8076. Cambridge, MA: NBER.CrossRefGoogle Scholar
  18. Eichengreen, Barry, and David Leblang. 2003. Capital Account Liberalization and Growth: Was Mr. Mahathir Right? International Journal of Finance & Economics 8: 205–224.CrossRefGoogle Scholar
  19. Eichengreen, Barry, Rachita Gullapalli, and Ugo Panizza. 2011. Capital Account Liberalization, Financial Development and Industry Growth: A Synthetic View. Journal of International Money and Finance 30: 1090–1106.CrossRefGoogle Scholar
  20. Huang, Yongfu. 2010. Determinants of Financial Development. Basingstoke: Palgrave Macmillan.CrossRefGoogle Scholar
  21. IMF. 2007. IMF Country Report: Turkey. 07/361.Google Scholar
  22. ———. 2012. IMF Country Report: Turkey. 12/261.Google Scholar
  23. ———. 2017. IMF Country Report: Turkey. 17/35.Google Scholar
  24. Kaminsky, Graciela L., and Carmen M. Reinhart. 1999. The Twin Crises: The Causes of Banking and Balance of Payment Problems. American Economic Review 89: 473–500.CrossRefGoogle Scholar
  25. Kaminsky, Graciela L., and Sergio L. Schmukler. 2008. Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles. Review of Finance 12: 253–292.CrossRefGoogle Scholar
  26. Kara, A. Hakan. 2016. A Brief Assessment of Turkey’s Macroprudential Policy Approach: 2011–2015. Central Bank Review 16: 85–92.CrossRefGoogle Scholar
  27. King, Robert G., and Ross Levine. 1993. Finance, Entrepreneurship, and Growth: Theory and Evidence. Journal of Monetary Economics 32: 513–542.CrossRefGoogle Scholar
  28. Klein, Michael W. 2003. Capital Account Openness and the Varieties of Growth Experience, NBER Working Paper 9500. Cambridge, MA: NBER.CrossRefGoogle Scholar
  29. Kose, M. Ayhan, Eswar S. Prasad, and Marco E. Terrones. 2009a. Does Openness to International Financial Flows Raise Productivity Growth? Journal of International Money and Finance 28: 554–580.CrossRefGoogle Scholar
  30. Kose, M. Ayhan, Eswar S. Prasad, Kenneth Rogoff, and Shanjg-Jin Wei. 2009b. Financial Globalization: A Reappraisal. IMF Staff Papers 56: 8–62.CrossRefGoogle Scholar
  31. Levine, Ross. 2005. Finance and Growth: Theory and Evidence. In Handbook of Economic Growth Volume 1A, ed. Philippe Aghion and Steven N. Durlauf, 865–934. Amsterdam: Elsevier.CrossRefGoogle Scholar
  32. Levine, Ross, Norman Loayza, and Thorsten Beck. 2000. Financial Intermediation and Growth: Causality and Causes. Journal of Monetary Economics 46: 31–77.CrossRefGoogle Scholar
  33. Loayza, Norman, and Romain Ranciere. 2006. Financial Development, Financial Fragility, and Growth. Journal of Money, Credit and Banking 38: 1051–1076.CrossRefGoogle Scholar
  34. McKinnon, Ronald I. 1973. Money and Capital in Economic Development. Washington, DC: The Brookings Institution.Google Scholar
  35. Odedokun, Matthew O. 1996. Alternative Econometric Approaches for Analyzing the Role of the Financial Sector in Economic Growth: Time-Series Evidence from LDCs. Journal of Development Economics 50: 119–146.CrossRefGoogle Scholar
  36. OECD. 2004. Understanding Economic Growth: Macro-Level, Industry-Level, Firm-Level. New York: Palgrave Macmillan.Google Scholar
  37. ———. 2014. OECD Economic Surveys: Turkey.Google Scholar
  38. Ozturk, Ilhan. 2008. Financial Development and Economic Growth: Evidence from Turkey. Applied Econometrics and International Development 8: 85–98.Google Scholar
  39. Patrick, Hugh T. 1966. Financial Development and Economic Growth in Underdeveloped Countries. Economic Development and Cultural Change 14: 174–189.CrossRefGoogle Scholar
  40. Rajan, Raghuram G., and Luigi Zingales. 2003. The Great Reversals: The Politics of Financial Development in the Twentieth Century. Journal of Financial Economics 69: 5–50.CrossRefGoogle Scholar
  41. Ram, Rati. 1999. Financial Development and Economic Growth: Additional Evidence. Journal of Development Studies 35: 164–174.CrossRefGoogle Scholar
  42. Ranciere, Romain, Aaron Tornell, and Frank Westermann. 2006. Decomposing the Effects of Financial Liberalization: Crises vs. Growth. Journal of Banking & Finance 30: 3331–3348.CrossRefGoogle Scholar
  43. Rioja, Felix, and Neven Valev. 2004. Does One Size Fit All? A Reexamination of the Finance and Growth Relationship. Journal of Development Economics 74: 429–447.CrossRefGoogle Scholar
  44. Rodrik, Dani. 1990. Premature Liberalization, Incomplete Stabilization: The Özal Decade in Turkey, NBER Working Paper 3300. Cambridge, MA: NBER.CrossRefGoogle Scholar
  45. ———. 1998. Who Needs Capital-Account Convertibility? In Should the IMF Pursue Capital-Account Convertibility? ed. Stanley Fischer et al., 55–65. Princeton: Princeton University Press.Google Scholar
  46. Sahay, Ratna, et al. 2015. Rethinking Financial Deepening: Stability and Growth in Emerging Markets, IMF Staff Discussion Note 15-08. Washington, DC: IMF.Google Scholar
  47. Shaw, Edward S. 1973. Financial Deepening in Economic Development. New York: Oxford University Press.Google Scholar
  48. Stiglitz, Joseph E. 2000. Capital Market Liberalization, Economic Growth, and Instability. World Development 28: 1075–1086.CrossRefGoogle Scholar
  49. Stiglitz, Joseph E., Jose A. Ocampo, Shari Spiegel, Ricardo Ffrench-Davis, and Deepak Nayyar. 2006. Stability with Growth – Macroeconomics, Liberalization, and Development. New York: Oxford University Press.CrossRefGoogle Scholar
  50. Yildirim, Nuri, and Huseyin Tastan. 2012. Capital Flows and Economic Growth Across Spectral Frequencies: Evidence from Turkey. Panoeconomicus 59: 441–462.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Ali Ari
    • 1
  1. 1.Department of Political Science and Public AdministrationMarmara UniversityIstanbulTurkey

Personalised recommendations