(Participation Banks Role in Economic Growth: A Comparative Analysis with Deposit Bank)

Abstract

Purpose – The aim of this paper is to seek after 2003 whether participation banks contribute to growth performance in Turkey. For the research, the funds, the credits and the asset data of participation and deposit banks used. Design/methodology/approach – Johansen Cointegration test is used to determine the long-term relationship between growth and participation and deposit banks. If the long-term relationship is detected, the direction of the relationship will be tested by the Fully Modified Least Squares (FMOLS) method. If there is a long term relationship, Granger Causality test will be used to reaesrch the causality relationship. The funds, loans extended and asset data of participation and deposit banks is used for the tests. Findings – Our results reveal that there is no long run relation between growth and participation banks. In a FMOLS, contribution to the growth of deposit banks is highest. There is a bilateral causality relationship between deposit banks and growth. Discussion – According to these results, there is a mechanism affecting each other between deposit banks and economic growth. In particular, credits in deposit banks have a positive impact on growth. The role of participation banks in this mechanism is weak and has no long-term relationship with growth.