Analysis of the Relationship between Financial Development and Economic Growth: The Case of Transition Economies

Financial development, which is considered to be one of the reasons for economic growth, is one of the issues discussed in the literature in recent years. Financial development is defined as the increase in the financial instruments used in a country and the intensity of the use of these instruments. More generally, it is also possible to define the size of the financial system and the change in size and quality and quantity. The history of theoretical and empirical studies on whether there is a causal relationship between financial development and economic growth goes back to ancient times. The concepts of economic growth and economic development are important for both developed and developing countries at the beginning of each period. Because these concepts are not only economic, but also a longterm process involving social and political parameters.
The idea that financial market development can be a policy tool in increasing economic growth accelerated the development of financial markets. However, the relationship between financial market development and economic growth has led to controversy. To reveal the direction of causality between financial development and economic growth is very important in terms of determining policy to increase economic growth. However, although the empirical studies on this issue are different in terms of results, there is no consensus on the direction of causality.
The aim of this study is to investigate the relationship between financial development and economic growth for the transition economies through the panel Granger causality test developed by Dumitrescu and Hurlin (2012). The annual data used covers the period 1995-2018. As a result of the study, a one - way causality relationship was found in transition economies from financial development to economic growth. This result shows that the hypothesis of supply prediction in these countries is valid.

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