Does Financial Development Increase Private Savings? The Case of Turkey
Hasan Güngör, Serhan Çiftçioğlu, Mehmet Balcılar

Abstract
The paper aims to analyze the nature of causality between financial development and private savings for the period of 1970 -2008. A composite index of three alternative financial development measure is constructed. We use bounds tests of Pesaran et al. (2001) due to mixed integration orders of the variables and small sample size. Long-run levels relationships are estimated using autoregressive distributed lag (ARDL) method. We check the robustness of the results using the estimates from fully modified ordinary least squares (FM-OLS) and dynamic ordinary least square (DOLS). Both short-run and long run-causality tests are performed for the pairs of variables conditioning on the control variables. We found that private savings have been positively and significantly affected not only by the composite index of financial development that we constructed but also by each one of the respective three components of this index. As theoretically expected the estimated effect of the ratio of private sector credit to GDP is negative but it is highly insignificant suggesting that financial development might not have relax the liquidity constraint in any significant manner in Turkey.

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