RE-EXAMINATION OF THE SUPPLY LEADING HYPOTHESIS FOR TURKEY: A DISAGGREGATED ANALYSIS

In this investigation, the causal link among financial development and economic activity is explored to determine whether the supply leading hypothesis (SLH) or the demand following hypothesis (DFH) is valid for the Turkish economy. For this aim, the study employs the Fourier Toda-Yamamoto causality test of Nazlioglu, Gormus, and Soytas (2016) by utilizing annual data covering 1980-2020. To proxy financial development, the Financial Development Index (FDi) of IMF and its eight sub-indices are chosen. The findings of this work show that the FDi Granger causes per capita income in Turkey. Therefore, one can say that the SLH holds for the Turkish economy at the aggregate level. The disaggregated level of data differs across sub-indices. The empirical findings of the paper provide significant policy implications for the economic agents.