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FINANCIAL DEVELOPMENT AND HUMAN CAPITAL IN TURKEY: ARDL APPROACH

Year 2017, Volume: 1 Issue: 2, 1 - 15, 28.12.2017

Abstract

The impact of human capital on financial development
has not been studied quite extensively in up-to-date studies. Hence, this
article tries to fill in this gap by exploring the impact of human capital on
financial development in Turkey. Human capital is expected to have a positive
impact on financial development since it reduces information asymmetry. In
addition, it is expected to increase demand for financial services and
instruments. This article investigates the long-run and short-run relationship
between financial development and human capital in Turkey using ARDL approach.
Data are collected over 30-years period (1986-2015). In order to estimate the
relationship between these economic terms, financial development is approximated
using two proxy variables: broad money (% of GDP) and liquid liabilities (% of
GDP). Two proxy variables of financial development are used in order to check
for the sensitivity of the results. In addition, the impact of gross capital
formation (% of GDP) is controlled. The obtained results indicate a significant
positive impact of human capital on broad money (% of GDP) as well as on liquid
liabilities (% of GDP) in both, short- and long-run. Control variable is not
reported to be significant. Pesaran/Shin/Smith ARDL bounds test confirms the
existence of a long-run relationship.

References

  • Boustan, L., Philippe, A., Hoxby, C.M. and Vandenbussche, Jerome. (2009). The Causal Impact of Education on Economic Growth: Evidence from U.S. Manuscript, http://www.brookings.edu/economics/bpea//media/Files/Programs/ES/BPEA/2009_s pring_bpea_papers/2009_spring_bpea_aghion_etal.pdf.
  • Engle, R. F., and C. W. J. Granger (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, Vol. 55(2), pp. 251-276.
  • Forgha, N.M., Sama, M.C. and Aquials, N.A. (2016). An Econometric Investigation in to Financial Intermediation, Domestic Investment and Economic Growth in Cameroon, Journal of Finance and Economics, Vol. 4 (1), pp. 1-9.
  • Hanushek, E. A. and Woessmann, L. (2011c). Sample Selectivity and the Validity of International Student Achievement Tests in Economic Research. EconomicLetters, Vol. 110(2), pp. 79-82.
  • Hassler, U., and J. Wolters (2006). Autoregressive Distributed Lag Models and Cointegration. AllgemeinesStatistischesArchiv, Vol. 90(1), pp. 59-74.
  • Hatemi-J, A. and Shamsuddin, M. (2016). The Causal Interaction between Financial Development and Human Development in Bangladesh, Applied Economics, pp, 2-4.
  • Jahfer, A. and Abdul Rauf, F. The Relationship between Financial Development, Human Capital Development and Economic Growth in Sri Lanka. 5th Annual International Research Conference- 2016, Faculty of Management and Commerce- SEUSL.
  • Kargbo, A.A., Ding, Y. andKargbo, M. (2016). Financial Development, Human Capital, and Economic Growth: New Evidence from Sierra Leone. Journal of Finance and Bank Management, Vol. 4 (1), pp. 49-67.
  • Nik, H.A., Nasab, Z.S., Salmani, Y. and Shahriari, N. (2013). The Relationship between Financial Development Indicators and Human Capital in Iran, Management Science Letters, Vol. 3, pp. 1261–1272.
  • Outreville, J. F. (1999). Financial Development, Human Capital and Political Stability. UNCTAD Discussion Papers. http://unctad.org/en/docs/dp_142.en.pdf.
  • Owings, W.A. and Kaplan, L. (2013), Education as an investment in Turkey’s human capital.https://www.researchgate.net/publication/270218205_Education_as_an_investment_in_Turkey%27s_human_capital
  • Pesaran, M. H., and Y. Shin (1998). An Autoregressive Distributed-Lag Modelling Approach to Cointegration Analysis. In Econometrics and Economic Theory in the 20th Century. The RagnarFrisch Centennial Symposium, ed. S. Strøm, chap. 11, pp. 371–413. Cambridge: Cambridge University Press.
  • Sehrawat, M., Giri, A.K. (2017). An Empirical Relationship between Financial Development Indicators and Human Capital in Some Selected Asian Countries. International Journal of Social Economics, Vol. 44 (3) No. 3, pp. 337-349.

FINANCIAL DEVELOPMENT AND HUMAN CAPITAL IN TURKEY: ARDL APPROACH

Year 2017, Volume: 1 Issue: 2, 1 - 15, 28.12.2017

Abstract

The impact of human capital on financial development
has not been studied quite extensively in up-to-date studies. Hence, this
article tries to fill in this gap by exploring the impact of human capital on
financial development in Turkey. Human capital is expected to have a positive
impact on financial development since it reduces information asymmetry. In
addition, it is expected to increase demand for financial services and instruments.
This article investigates the long-run and short-run relationship between
financial development and human capital in Turkey using ARDL approach. Data are
collected over 30-years period (1986-2015). In order to estimate the
relationship between these economic terms, financial development is
approximated using two proxy variables: broad money (% of GDP) and liquid
liabilities (% of GDP). Two proxy variables of financial development are used
in order to check for the sensitivity of the results. In addition, the impact
of gross capital formation (% of GDP) is controlled. The obtained results
indicate a significant positive impact of human capital on broad money (% of
GDP) as well as on liquid liabilities (% of GDP) in both, short- and long-run.
Control variable is not reported to be significant. Pesaran/Shin/Smith ARDL
bounds test confirms the existence of a long-run relationship.

References

  • Boustan, L., Philippe, A., Hoxby, C.M. and Vandenbussche, Jerome. (2009). The Causal Impact of Education on Economic Growth: Evidence from U.S. Manuscript, http://www.brookings.edu/economics/bpea//media/Files/Programs/ES/BPEA/2009_s pring_bpea_papers/2009_spring_bpea_aghion_etal.pdf.
  • Engle, R. F., and C. W. J. Granger (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica, Vol. 55(2), pp. 251-276.
  • Forgha, N.M., Sama, M.C. and Aquials, N.A. (2016). An Econometric Investigation in to Financial Intermediation, Domestic Investment and Economic Growth in Cameroon, Journal of Finance and Economics, Vol. 4 (1), pp. 1-9.
  • Hanushek, E. A. and Woessmann, L. (2011c). Sample Selectivity and the Validity of International Student Achievement Tests in Economic Research. EconomicLetters, Vol. 110(2), pp. 79-82.
  • Hassler, U., and J. Wolters (2006). Autoregressive Distributed Lag Models and Cointegration. AllgemeinesStatistischesArchiv, Vol. 90(1), pp. 59-74.
  • Hatemi-J, A. and Shamsuddin, M. (2016). The Causal Interaction between Financial Development and Human Development in Bangladesh, Applied Economics, pp, 2-4.
  • Jahfer, A. and Abdul Rauf, F. The Relationship between Financial Development, Human Capital Development and Economic Growth in Sri Lanka. 5th Annual International Research Conference- 2016, Faculty of Management and Commerce- SEUSL.
  • Kargbo, A.A., Ding, Y. andKargbo, M. (2016). Financial Development, Human Capital, and Economic Growth: New Evidence from Sierra Leone. Journal of Finance and Bank Management, Vol. 4 (1), pp. 49-67.
  • Nik, H.A., Nasab, Z.S., Salmani, Y. and Shahriari, N. (2013). The Relationship between Financial Development Indicators and Human Capital in Iran, Management Science Letters, Vol. 3, pp. 1261–1272.
  • Outreville, J. F. (1999). Financial Development, Human Capital and Political Stability. UNCTAD Discussion Papers. http://unctad.org/en/docs/dp_142.en.pdf.
  • Owings, W.A. and Kaplan, L. (2013), Education as an investment in Turkey’s human capital.https://www.researchgate.net/publication/270218205_Education_as_an_investment_in_Turkey%27s_human_capital
  • Pesaran, M. H., and Y. Shin (1998). An Autoregressive Distributed-Lag Modelling Approach to Cointegration Analysis. In Econometrics and Economic Theory in the 20th Century. The RagnarFrisch Centennial Symposium, ed. S. Strøm, chap. 11, pp. 371–413. Cambridge: Cambridge University Press.
  • Sehrawat, M., Giri, A.K. (2017). An Empirical Relationship between Financial Development Indicators and Human Capital in Some Selected Asian Countries. International Journal of Social Economics, Vol. 44 (3) No. 3, pp. 337-349.
There are 13 citations in total.

Details

Subjects Economics
Journal Section case study
Authors

Elma Satrovic

Publication Date December 28, 2017
Submission Date November 14, 2017
Acceptance Date December 20, 2017
Published in Issue Year 2017 Volume: 1 Issue: 2

Cite

APA Satrovic, E. (2017). FINANCIAL DEVELOPMENT AND HUMAN CAPITAL IN TURKEY: ARDL APPROACH. Kapadokya Akademik Bakış, 1(2), 1-15.