THE ROLE OF BANKING SYSTEM IN PROVINCIAL ECONOMIC DEVELOPMENT: A STUDY OF TURKIYE, FROM THE 70S TO THE 2000S

Abstract

This research examines the relationship between banking activities and provincial economic development. In particular, the study offers insight on the nature of the regional economic development discrepancies in Turkiye. The study finds that, despite the trend towards decentralisation that takes place in regional economic policies, the banking system adopts centralisation policies. Using dynamic generalised method of moment (GMM) estimates, we evaluated a unique data set including 39 years of provincial demographic, socioeconomic, and financial factors in Turkey. The study demonstrates that the banking intermediation is detrimental to provincial development. The Turkish banking system’s hierarchical structure prevents financial intermediaries from fulfilling their role in fostering development. Consolidation and concentration strategies must be reassessed, since they tend to favour centralisation, which has been shown to be inefficient for regional convergence. The results also suggest that branch managers should be granted greater decision-making authority to make better use of locally produced information when approving or rejecting projects, which would eventually lead to a reduction in provincial disparities.