Analysing of the Relation Between Stock Markets and Economic Growth in Turkey by ARDL Bound Test

Abstract

This study investigates the relation between stock market and economic growth using yearly data between 1986 and 2016. Through the ARDL boundary test and the Error Correction Term (ECT), long-term relationships and equilibrium between variables were determined. The results showed that there was a long-term cointegration between the stock market development and economic growth. In the short-term Granger causality test, it has been concluded that the gross domestic product and money supply have two-way causality with stock exchange market, that there was one-way causality from private-sector loans to total external trade, that money supply has two-way causality with total foreign trade, that there was one-way causality from gross domestic product to money supply, that private sector loans had no causality with other sectors. In conclusion, the cointegrated variables are closer to the views of Lewis (1954) instead of Schumpeter (1911) and stock market capitalization has bilateral interaction with economic growth rather than a one-way flow from economic growth to stock market capitalization.