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Abstract
Purpose ― Over the past two decades since the 2000s, Turkey's private savings rates have decreased, which has become a concern for policymakers. In addition to considering the key determinants of private savings, this study primarily aims to quantify the linear and nonlinear impacts of financial development on private savings from 1980 to 2015.
Method ― This study uses Autoregressive Distributed Lag (ARDL) procedure and the Fourier Toda-Yamamoto causality framework.
Findings ― The main findings are as follows: 1) The ARDL bounds test supports the presence of a long-run equilibrium relationship between private savings and its determinants; 2) Financial development affects private savings nonlinearly in an inverted U-shaped pattern, and 3) No causality relationship is observed between private savings and financial development.
Implication ― As financial development has an inverted U-shaped relationship with private savings, indicating that the complementary effect of financial development is replaced with a substitution effect after a certain threshold level, Turkish authorities should consider this evidence when tailoring policies regarding financial markets.
Originality ― This study is the first to identify whether the relationship between private savings and financial development is linear or nonlinear in the context of an emerging economy in Turkey.
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References
- Aizenman, J., Cheung, Y.-W., & Ito, H. (2019). The interest rate effect on private saving: Alternative perspectives. Journal of International Commerce, Economics and Policy, 10(01), 1950002. https://doi.org/10.1142/S1793993319500029
- Ando, A., & Modigliani, F. (1963). The life-cycle hypothesis of saving: Aggregate implications and tests. American Economic Review, 53, 55–84.
- Barro, R. J. (1974). Are government bonds net wealth? Journal of Political Economy, 82(6), 1095–1117. https://doi.org/10.1086/260266
- Bulíř, A., & Swiston, A. (2006). What explains private savings in Mexico? (IMF Working Paper No. WP/06/191).
- Cavallo, Eduardo, Eichengreen, B., & Panizza, U. (2018). Can countries rely on foreign saving for investment and economic development? Review of World Economics / Weltwirtschaftliches Archiv, 154(2), 277–306.
- Ertuğrul, H. M., Gebeşoğlu, P. F., & Atasoy, B. S. (2018). Mind the gap: Turkish case study of policy change in private pension schemes. Borsa Istanbul Review, 18(2), 140–149. https://doi.org/10.1016/j.bir.2017.11.003
- Freytag, A., & Voll, S. (2013). Institutions and savings in developing and emerging economies. Public Choice, 157(3), 475–509. https://doi.org/10.1007/s11127-013-0121-7
- Friedman, M. (1957). III. The permanent income hypothesis. In Theory of the Consumption Function (pp. 20–37). Princeton: Princeton University Press. https://doi.org/10.1515/9780691188485-005
- Fromentin, V. (2017). The long-run and short-run impacts of remittances on financial development in developing countries. The Quarterly Review of Economics and Finance, 66, 192–201. https://doi.org/10.1016/j.qref.2017.02.006
- Grigoli, F., Herman, A., & Schmidt-Hebbel, K. (2018). Saving in the world. World Development, 104, 257–270. https://doi.org/10.1016/j.worlddev.2017.11.022
- Gungor, H., Ciftcioglu, S., & Balcilar, M. (2014). Does financial development increase private savings? The case of Turkey. International Journal of Business and Social Science, 5(2), 36–47. https://doi.org/10.1142/S0217590816500028
- IMF. (2007). Safe to save less? Assessing the recent decline in Turkey’s private saving rate (IMF Country Report No. 07/364). https://doi.org/10.5089/9781451838237.002
- Inter-American Development Bank. (2016). Saving for stability. In E. Cavallo & T. Serebrisky (Eds.), Saving for development (pp. 109–130). New York: Palgrave Macmillan US. https://doi.org/10.1057/978-1-349-94929-8_5
- Ito, H., & Chinn, M. (2007). East Asia and global imbalances: Saving, investment, and financial development (NBER Working Paper Series No. w13364). https://doi.org/10.3386/w13364
- Keynes, J. (1936). General theory of employment, interest, and money. New York: Harcourt Brace Company.
- Lind, J. T., & Mehlum, H. (2010). With or without U? The appropriate test for a U-shaped relationship. Oxford Bulletin of Economics and Statistics, 72(1), 109–118. https://doi.org/10.1111/j.1468-0084.2009.00569.x
- Marshall, M. G., Gurr, T. R., & Jaggers, K. (2018). Polity IV project: Political regime characteristics and transitions, 1800–2017. Vienna.
- Matur, E. P., Sabuncu, A., & Bahçeci, S. (2012). Determinants of Private Savings and Interaction Between Public & Private Savings in Turkey. Middle Eastern and African Economies, 14(September), 102–125.
- Nazlioglu, S., Gormus, N. A., & Soytas, U. (2016). Oil prices and real estate investment trusts (REITs): Gradual-shift causality and volatility transmission analysis. Energy Economics, 60, 168–175. https://doi.org/10.1016/j.eneco.2016.09.009
- OECD. (2015). Pension markets in focus. Retrieved from http://www.oecd.org/daf/fin/private-pensions/Pension-Markets-in-Focus-2015.pdf
- Özatay, F. (2016). Turkey’s distressing dance with capital flows. Emerging Markets Finance and Trade, 52(2), 336–350. https://doi.org/10.1080/1540496X.2015.1011539
- Ozcan, K. M., Gunay, A., & Ertac, S. (2003). Determinants of private savings behaviour in Turkey. Applied Economics, 35(12), 1405–1416. https://doi.org/10.1080/0003684032000100373
- Ozcan, K. M., Gunay, A., & Ertac, S. (2012). Macro and socioeconomic determinants of Turkish private savings. Journal of Economic Cooperation and Development, 33(2), 93–130.
- Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modelling approach to cointegration analysis. In S. Storm (Ed.), Econometrics and Economic Theory in the 20th Century: the Ragnar Frisch Centennial Symposium (pp. 1–31). Cambridge: Cambridge University Press. https://doi.org/10.1017/CCOL521633230
- Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
- Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346. https://doi.org/10.2307/2336182
- Presidency of the Republic of Turkey. (2015). Presidency of strategy and budget, the shares of total domestic savings and gross fixed investments in GDP (1975-2015). Retrieved August 13, 2020, from http://www.sbb.gov.tr/ekonomik-ve-sosyal-gostergeler/#1540021349032-1be70108-294c
- Sahoo, P., & Dash, R. K. (2013). Financial sector development and domestic savings in South Asia. Economic Modelling, 33, 388–397. https://doi.org/10.1016/j.econmod.2013.04.018
- Shawa, K. C. (2016). Drivers of private savings in Sub-Saharan African countries. Journal of Economic Development, 41(2), 77–110. https://doi.org/10.35866/caujed.2016.41.2.004
- Sirowy, L., & Inkeles, A. (1990). The effects of democracy on economic growth and inequality: A review. Studies In Comparative International Development, 25(1), 126–157. https://doi.org/10.1007/BF02716908
- Svirydzenka, K. (2016). Introducing a new broad-based index of financial development (IMF Working Papers No. 16(05)). https://doi.org/10.5089/9781513583709.001
- Tatlıyer, M. (2018). Saving behaviour in Turkey: Where are we? And what can we do about it? In A. F. Aysan, M. Babacan, N. Gur, & H. Karahan (Eds.), Turkish Economy (pp. 239–260). Cham: Springer International Publishing. https://doi.org/10.1007/978-3-319-70380-0_11
- Tunc, C., & Yavas, A. (2016). Not all credit is created equal: Mortgage vs non-mortgage debt and private saving rate in Turkey. Central Bank Review, 16(1), 25–32. https://doi.org/10.1016/j.cbrev.2016.03.003
- Van Rijckeghem, C. (2010). Determinants of Private Saving in Turkey: An Update (No. 2010/04). Bogazici University Working Papers. Bogazici University, Department of Economics.
- Wang, P., Xu, L., & Xu, Z. (2011). Financial development and aggregate saving rates: A hump-shaped relationship, mimeo (SSRN Electronic Journal). Hong Kong. https://doi.org/10.2139/ssrn.2085277
- World Bank. (2011). Sustaining high growth: The role of domestic savings: Turkey Country Economic Memorandum Report No.66301-TR,. Washington DC.
- World Bank. (2020). World development indicators.
- Zivot, E., & Andrews, D. W. K. (1992). Further evidence on the great crash, the oil-price shock, and the unit-root hypothesis. Journal of Business & Economic Statistics, 10(3), 251–270. https://doi.org/10.2307/1391541
References
Aizenman, J., Cheung, Y.-W., & Ito, H. (2019). The interest rate effect on private saving: Alternative perspectives. Journal of International Commerce, Economics and Policy, 10(01), 1950002. https://doi.org/10.1142/S1793993319500029
Ando, A., & Modigliani, F. (1963). The life-cycle hypothesis of saving: Aggregate implications and tests. American Economic Review, 53, 55–84.
Barro, R. J. (1974). Are government bonds net wealth? Journal of Political Economy, 82(6), 1095–1117. https://doi.org/10.1086/260266
Bulíř, A., & Swiston, A. (2006). What explains private savings in Mexico? (IMF Working Paper No. WP/06/191).
Cavallo, Eduardo, Eichengreen, B., & Panizza, U. (2018). Can countries rely on foreign saving for investment and economic development? Review of World Economics / Weltwirtschaftliches Archiv, 154(2), 277–306.
Ertuğrul, H. M., Gebeşoğlu, P. F., & Atasoy, B. S. (2018). Mind the gap: Turkish case study of policy change in private pension schemes. Borsa Istanbul Review, 18(2), 140–149. https://doi.org/10.1016/j.bir.2017.11.003
Freytag, A., & Voll, S. (2013). Institutions and savings in developing and emerging economies. Public Choice, 157(3), 475–509. https://doi.org/10.1007/s11127-013-0121-7
Friedman, M. (1957). III. The permanent income hypothesis. In Theory of the Consumption Function (pp. 20–37). Princeton: Princeton University Press. https://doi.org/10.1515/9780691188485-005
Fromentin, V. (2017). The long-run and short-run impacts of remittances on financial development in developing countries. The Quarterly Review of Economics and Finance, 66, 192–201. https://doi.org/10.1016/j.qref.2017.02.006
Grigoli, F., Herman, A., & Schmidt-Hebbel, K. (2018). Saving in the world. World Development, 104, 257–270. https://doi.org/10.1016/j.worlddev.2017.11.022
Gungor, H., Ciftcioglu, S., & Balcilar, M. (2014). Does financial development increase private savings? The case of Turkey. International Journal of Business and Social Science, 5(2), 36–47. https://doi.org/10.1142/S0217590816500028
IMF. (2007). Safe to save less? Assessing the recent decline in Turkey’s private saving rate (IMF Country Report No. 07/364). https://doi.org/10.5089/9781451838237.002
Inter-American Development Bank. (2016). Saving for stability. In E. Cavallo & T. Serebrisky (Eds.), Saving for development (pp. 109–130). New York: Palgrave Macmillan US. https://doi.org/10.1057/978-1-349-94929-8_5
Ito, H., & Chinn, M. (2007). East Asia and global imbalances: Saving, investment, and financial development (NBER Working Paper Series No. w13364). https://doi.org/10.3386/w13364
Keynes, J. (1936). General theory of employment, interest, and money. New York: Harcourt Brace Company.
Lind, J. T., & Mehlum, H. (2010). With or without U? The appropriate test for a U-shaped relationship. Oxford Bulletin of Economics and Statistics, 72(1), 109–118. https://doi.org/10.1111/j.1468-0084.2009.00569.x
Marshall, M. G., Gurr, T. R., & Jaggers, K. (2018). Polity IV project: Political regime characteristics and transitions, 1800–2017. Vienna.
Matur, E. P., Sabuncu, A., & Bahçeci, S. (2012). Determinants of Private Savings and Interaction Between Public & Private Savings in Turkey. Middle Eastern and African Economies, 14(September), 102–125.
Nazlioglu, S., Gormus, N. A., & Soytas, U. (2016). Oil prices and real estate investment trusts (REITs): Gradual-shift causality and volatility transmission analysis. Energy Economics, 60, 168–175. https://doi.org/10.1016/j.eneco.2016.09.009
OECD. (2015). Pension markets in focus. Retrieved from http://www.oecd.org/daf/fin/private-pensions/Pension-Markets-in-Focus-2015.pdf
Özatay, F. (2016). Turkey’s distressing dance with capital flows. Emerging Markets Finance and Trade, 52(2), 336–350. https://doi.org/10.1080/1540496X.2015.1011539
Ozcan, K. M., Gunay, A., & Ertac, S. (2003). Determinants of private savings behaviour in Turkey. Applied Economics, 35(12), 1405–1416. https://doi.org/10.1080/0003684032000100373
Ozcan, K. M., Gunay, A., & Ertac, S. (2012). Macro and socioeconomic determinants of Turkish private savings. Journal of Economic Cooperation and Development, 33(2), 93–130.
Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modelling approach to cointegration analysis. In S. Storm (Ed.), Econometrics and Economic Theory in the 20th Century: the Ragnar Frisch Centennial Symposium (pp. 1–31). Cambridge: Cambridge University Press. https://doi.org/10.1017/CCOL521633230
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346. https://doi.org/10.2307/2336182
Presidency of the Republic of Turkey. (2015). Presidency of strategy and budget, the shares of total domestic savings and gross fixed investments in GDP (1975-2015). Retrieved August 13, 2020, from http://www.sbb.gov.tr/ekonomik-ve-sosyal-gostergeler/#1540021349032-1be70108-294c
Sahoo, P., & Dash, R. K. (2013). Financial sector development and domestic savings in South Asia. Economic Modelling, 33, 388–397. https://doi.org/10.1016/j.econmod.2013.04.018
Shawa, K. C. (2016). Drivers of private savings in Sub-Saharan African countries. Journal of Economic Development, 41(2), 77–110. https://doi.org/10.35866/caujed.2016.41.2.004
Sirowy, L., & Inkeles, A. (1990). The effects of democracy on economic growth and inequality: A review. Studies In Comparative International Development, 25(1), 126–157. https://doi.org/10.1007/BF02716908
Svirydzenka, K. (2016). Introducing a new broad-based index of financial development (IMF Working Papers No. 16(05)). https://doi.org/10.5089/9781513583709.001
Tatlıyer, M. (2018). Saving behaviour in Turkey: Where are we? And what can we do about it? In A. F. Aysan, M. Babacan, N. Gur, & H. Karahan (Eds.), Turkish Economy (pp. 239–260). Cham: Springer International Publishing. https://doi.org/10.1007/978-3-319-70380-0_11
Tunc, C., & Yavas, A. (2016). Not all credit is created equal: Mortgage vs non-mortgage debt and private saving rate in Turkey. Central Bank Review, 16(1), 25–32. https://doi.org/10.1016/j.cbrev.2016.03.003
Van Rijckeghem, C. (2010). Determinants of Private Saving in Turkey: An Update (No. 2010/04). Bogazici University Working Papers. Bogazici University, Department of Economics.
Wang, P., Xu, L., & Xu, Z. (2011). Financial development and aggregate saving rates: A hump-shaped relationship, mimeo (SSRN Electronic Journal). Hong Kong. https://doi.org/10.2139/ssrn.2085277
World Bank. (2011). Sustaining high growth: The role of domestic savings: Turkey Country Economic Memorandum Report No.66301-TR,. Washington DC.
World Bank. (2020). World development indicators.
Zivot, E., & Andrews, D. W. K. (1992). Further evidence on the great crash, the oil-price shock, and the unit-root hypothesis. Journal of Business & Economic Statistics, 10(3), 251–270. https://doi.org/10.2307/1391541