Testing the asymmetric effect of financial development and capital formation on growth in Türkiye

Building on the question of whether financial development and capital formation have asymmetric effects on economic growth, this study aims to test the asymmetric impact of broad money supply, private-sector loans, and gross capital formation on economic growth in Türkiye. The study covers the period from 1970 to 2023. The non-linear autoregressive distributed lag (NARDL) method was used in the study to identify asymmetric effects. The study found a long-run cointegration relationship between the variables. Accordingly, estimates of the long-run and short-run coefficients were derived by separating positive and negative shocks. In the short term, both positive and negative shocks to private-sector loans, as well as positive shocks to monetary expansion, negatively affect economic growth. However, negative shocks to capital formation have a positive impact on economic growth. In the long run, however, positive and negative shocks to monetary expansion, along with positive shocks to private-sector loans, hurt economic growth, whilst positive shocks to capital formation have a positive impact on economic growth. Ultimately, it has been concluded that, in Türkiye between 1970 and 2023, financial development hurt growth in both the short and long term, whilst capital accumulation had a positive impact. Based on these findings, it is necessary not only to channel financial development instruments in Türkiye towards productive sectors and capital formation, but also to increase and diversify the incentives that support capital formation.