The purpose of this study is to re-investigate the savings-growth nexus for the Malaysian economy using bounds testing approach to cointegration and Toda and Yamamoto (1995) and Dolado and Lutkepohl (1996) – TYDL Granger causality test. This study covered the sample period from 1971:Q1 to 2008:Q4. The cointegration results suggest that the variables are moving together in the long run and the TYDL Granger causality results indicate that the relationship between savings and economic growth is bilateral. In addition, the rolling sub-samples TYDL Granger causality test exhibited a relatively stable causal relationship running from savings to economic growth in Malaysia particularly before the onset of Asian Financial Crisis in 1997/1998.

The savings-growth nexus for the Malaysian economy: a view through rolling sub-samples

A well-developed financial sector can affect a country’s economic development by channeling financial resources in the most productive way and by providing sufficient credit to the private sector for investments. Studying the relationship between financial development and economic growth has become increasingly important. Although there are a significant number of studies on this subject, ideas about the relationship between financial development and economic growth are controversial due to mixed results. The theoretical background to this relationship has a long history. In 1911, Schumpeter argued that financial development plays an essential role in economic development because intermediary financial institutions have the capacity to allocate savings to more productive investments that promote economic progress. Other empirical studies have shown unidirectional, bidirectional or no relations between these two factors. Sri Lanka introduced reforms to its financial sector in 1977 by implementing an open economic policy. Therefore, studying the relationship between financial development and economic growth in this country is important. The objective of this study is to examine the relationship between financial development and economic growth in Sri Lanka for the period 1952 to 2014. After considering time series characteristics of the data, this study employs vector error correction methodology. This study uses five variables: real per capita GDP, ratio of broad money to GDP, ratio of investments to GDP, deposit interest rate in real terms and trade ratio.The results of this study confirm that there is a unidirectional relationship from financial development to economic growth in Sri Lanka. In addition, the investment ratio and trade ratio negatively affect the real per capita GDP and broad money ratio, while the deposit interest rate positively affects both variables. There are two cointegrating relationships among the five variables, and the error correction coefficients show economically and statistically significant results. The error correction coefficient of the GDP relationship is -0.0430 while error correction for broad money supply is -0.3693. This study highlights the importance of developing the financial sector in Sri Lanka to increase the growth of the country’s GDP. The interest rate has become the significant factor for GDP growth and for implementing monetary policy. The open economic policy has significant effect on money supply, and money supply affects the economic growth in the short term. Therefore, policy makers should consider about the time range in making policies.

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Financial Development and Economic Growth in Sri Lanka

The authors explore the sources of the resilience of the Turkish economy to the global financial crisis of 2008. They first show that financial factors and fundamentals were very strong in Turkey before the crisis, and monetary and fiscal policies responded strongly to the crisis in a countercyclical way. They find that these strong fundamentals and prudent economic policies are reflected in the risk premium movements. Emerging market bond index (EMBI) spreads for Turkey increased slightly during the 2008 crisis and decreased back to the normal levels quickly. This was in large contrast to the crisis in 2001, when spreads increased significantly due to the weak fundamentals and decreased very slowly. Second, the authors quantitatively analyze the effects of risk premium movements during the crisis in a small open economy framework. They find that the risk premium observed in 2008 could not generate large movements in output, validating the point that the Turkish economy was resistant to the financial fact...

Resilience of the Turkish Economy During the Global Financial Crisis of 2008

The recent rediscovery of institutions in the study of international development has drawn considerable attention to macro arrangements, but sparked much less interest in midrange, sectoral institutions and how they are reshaped under dynamic domestic and nondomestic constraints. This study joins the few examples of this latter research focus by offering a typology of sectoral institutional pathways in contemporary late developers. The typology incorporates four variables: pre-existing institutions, international norms, technocratic engineering, and coalition politics. It is argued that from careful pairings of these variables, for which the sectoral effects of internationalization and the intensity of domestic political competition are used as the main criteria, it is possible to deduce distinct ideal-typical pathways: insulated accommodation, insulated innovation, negotiated accommodation, and negotiated innovation. The typology models the complexity of institutional trajectories, but it cannot predict concrete institutional profiles. Its value is in providing guidance for empirical analysis. The bulk of the study is devoted to applying this framework to the evolution of Turkey’s fiscal, financial and agricultural regimes of governance from 1980 to 2007. This comparative exercise unlocks several empirical mysteries at once: the failure of Turkish governments in the 1990s to readjust the novel fiscal and banking regimes to preempt the perils of democratic instability and rapid financial integration; the surprising persistence of populist-corporatist forms of market governance in agriculture despite the neoliberalism of the 1980s and 1990s; the stark divergence in reform outcomes across these regimes during the intense restructuring efforts of the 2000s; some odd instances of institutional complementarity; and the exotic twists in the fortunes of Turkish peasants and bankers throughout the entire period. A separate chapter extends the typology to four non-Turkish cases to gain comparative insight into the different types of reshaping: Chinese banking, South Korean corporate governance, Mexican agriculture, and Argentine labor markets. Among the main findings of the study are the need to get beyond dichotomous notions of institutional continuity and change, the problematicity of the quest for good institutions via externally-inspired reforms, and the value of mid-range institutional analysis for understanding shifts in collective fortunes and preferences under processes of macro-transformation.

Peasants, Bankers and the State: Forging Institutions in Neoliberal Turkey

Investment under financial liberalization: Channels of liquidity and uncertainty

The main objective of this study is to investigate the effects of international capital inflows on the Turkish economy. Capital inflows, it is argued, can trigger both private consumption and investment expenditures. Increased consumption demand results in an increase in the relative prices of nontradable sectors with respect to tradable sectors. This eventually leads to a change in the composition of investments in favor of nontradable at the expense of tradable sectors. Increased investment in nontradable sectors does not contribute to the foreign exchange earning capacity of a country, and, given such, a country eventually becomes more vulnerable to currency shock. This can trigger major problems, such as significant capital outflows, large current account deficits, currency crisis, and economic contraction.

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Effects of International Capital Inflows on the Turkish Economy

Turkey has been implementing tight fiscal and monetary policies for years. These policies rely on the basic understanding that savings trigger growth and investments. However there are alternative theoretical discussions and empirical findings related to the interaction among these variables. In this study, while one of the purposes is to analyse the interaction among these variables for the Turkish case, the other is to try to bring an insight for other developing countries for the issues such as data production, econometric analysis, and as well as making policy suggestions in line with the evidence from the Turkish case. The findings of this study show that, it is the growth that induces both savings and investments. Hence, it is necessary to question policies that assume it is the savings triggering growth and investments.

Ahmet Cimenoglu

Papers

Effects of International Capital Inflows on the Turkish Economy

An analysis of the interaction among savings, investments and growth in Turkey