FINANCIAL DEVELOPMENT AND HUMAN CAPITAL IN TURKEY: ARDL APPROACH

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

Elma Satrovic

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.

Keywords

financial development, human capital, ARDL, bounds test

FINANCIAL DEVELOPMENT AND HUMAN CAPITAL IN TURKEY: ARDL APPROACH

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.

Keywords

financial development, human capital, ARDL, bounds test

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