The Relationship Between Human Capital and Financial Development: A Case Study of Turkey

Abstract

The current growth literature has focused on the contribution of the human and financial variables to growth. This has led to an insufficient and low number of studies investigating the relationship between the financial and human variables. However, in order to establish effective public policies, the correlation between these two variables must be well known. In line with this necessity, this study aimed to contribute the relevant literature by investigating the relations of the two variables in the case of Turkey. To do so, firstly, the human and financial development index for Turkey was established. Subsequently, the financial development indicator was measured through the M2/GDP ratio, and the human capital indicator was measured through the education and health expenditures/GDP ratio. Through the econometric analysis carried out using the data from the period of 1998-2016, the existence of causality and the direction of this causality between the financial development and human capital accumulation in Turkey were investigated. As a result, it was observed that in Turkey, while financial development causes the accumulation of human capital, there is no significant causality directed from human capital to financial development.