Financial Liberalization and Real Investment Evidence from Turkish Firms

There is increasing emphasis on the importance of efficient financial markets for sustained real investment and economic growth, yet limited empirical research on the effects of the deregulation of financial markets on the firm`s investment decisions. To test the ability of the 1980 financial reforms to relax the borrowing constraints faced by Turkish firms, this paper builds a dynamic investment model, where financial variables and real investment are linked through the net present value of the firm. A dynamic panel data methodology is used on a panel data set of 1,036 Turkish firms over the 1983-86 period. In addition, time-series analysis is employed on Turkish aggregate data over the 1971-91 period