Financial development and firm growth in the Turkish manufacturing industry: Evidence from heterogeneous panel based non-causality test

Abstract

Inspired by the finance-led growth hypothesis at the aggregate level, this study predicates this hypothesis on microfoundations to investigate the causality between financial development and firm growth in Turkish manufacturing industry during the period 1989–2010. To this end, a recently developed non-causality approach proposed by Dumitrescu and Hurlin is applied. Empirical results in which heterogeneity and cross-sectional dependence are taken into consideration reveal the validity of a supply-leading hypothesis for the overwhelming majority of the subsectors. This result seems robust across the subsectors, regardless of the financial development proxy. On the other hand, there is also evidence that the results for the proxy of firm growth are not uniform across subsectors.