Examining the Globalization-Economic Complexity-Financial Development Nexus in Turkey

Purpose: The purpose of this research is to examine the globalization-financial development-economic complexity link in Turkey for the period 1970-2017. Design/Methodology: In the first stage of the analysis, a tri-variate model is proposed. In the second stage, cointegration and Granger causality tests that have single Fourier-frequency functions in their testing equations are employed to examine causal links among the employed variables. Findings: The main findings indicate that (i) globalization and political globalization both indirectly (through financial development) and directly cause economic complexity; (ii) economic globalization indirectly causes economic complexity through financial development; (iii) social globalization and financial development directly cause economic complexity; (iv) bi-directional causality exists between globalization and financial development. These findings reveal that globalization is crucial for economic complexity. Also, ignoring the intermediating and direct roles of financial development in promoting Turkey’s economic complexity can be problematic. Limitations: This study focuses only on Turkey. Further research can focus on other emerging markets to confirm if similar causalities exist. Originality/Value: By using cointegration and causality tests that have Fourier-components, this study accounts for the possible effects of structural changes. Additionally, this study considers sub-indices of globalization and their causal links with financial development and economic complexity. Lastly, although financial development-economic complexity link and globalization-economic complexity nexus were separately investigated in some studies, these studies used bi-variate models. This study proposes a tri-variate model to examine cointegration and causalities among these variables.