erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Human Capital Accumulation, Financial Development and Economic Growth: Time Series Evidence for Turkey

Muhsin Kar (Kahramanmaraş Sütçü İmam University)

Abstract  

The contribution of financial development to economic growth has been long argued among the development economists. There is a growing consensus among the economists that a well-functioning financial market can positively contribute to economic growth in both developed and developing economies, since financial markets provide a vital link between saving and investment. With the rapid expansion of endogenous growth theories, research on the relationships between financial development and economic growth has received a new source of inspiration. It is argued that in these new models, financial development is one of the non-decreasing sources of economic growth. Moreover, a substantial body of recent economic theories has emphasized human capital as an additional determinant of economic growth. Not only does the new growth theories stress the importance of human capital, but also the human capital augmented neo-classical models pay increasing attention t! o this variable. Starting with Rebello (1991) type production function and following Ghatak et.al. (1995), Piazolo (1995), Coe and Moghadam (1993), Leigh (1996) and Odedokun (1996), this paper augments the production function with human capital and financial development and tries to empirically investigate the relationship between human capital accumulation, financial development and economic growth for Turkey for the period 1960-1995. Two proxies for human capital accumulation and one proxy for financial development are chosen. Time series properties of the data set are investigated and Engle and Granger cointegration technique is used in the analysis. Empirical findings indicate that the effects of human capital and financial development on economic growth are positive as argued by the theoretical literature. In the short-run, physical capital seems to be main determinants of economic growth.

Economic Research Center
Middle East Technical University
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