Macroeconomic Determinants of Financial Development in Turkiye: Evidence from the Fourier Bootstrap ARDL Approach

This study investigates the long-run impact of economic growth, natural resource rents, gross fixed capital formation growth, trade volume, and inflation on financial development in the Turkish economy spanning the period 1988-2020. To accurately model the inherent non-linear dynamics and gradual structural breaks in macroeconomic series, the empirical analysis employs the Fourier-based Bootstrap FARDL approach. Methodological findings confirm the statistical significance of the Fourier components in capturing smooth structural shifts over time, thereby validating the use of this flexible specification over traditional linear models. According to the long-run coefficient estimates, economic growth, trade volume, and natural resource revenues positively affect financial development, empirically supporting the “demand-following finance” and “resource blessing” hypotheses in the context of Türkiye. Conversely, gross fixed capital formation growth and inflation are negatively associated with financial development. The negative coefficient of gross fixed capital formation growth may reflect structural inefficiencies in the allocation and financing of investment The findings suggest that maintaining a low and predictable inflation environment, improving the allocation and financing of fixed investment, and strengthening the link between economic growth and financial inclusion may support financial development in Türkiye. However, the study does not directly identify the institutional mechanisms underlying these relationships.