Public Debt and Financial Development : Evidence from Turkey

This study analyzes the effects of public debt on financial development in Turkey. Specifically, we examine the role of public debt in profitability and efficiency, proxies for financial development, of the Turkish Banks. We find that public debt increases the profitability of private and foreign banks but it decreases the profitability of public banks during the 2001 crisis. This relationship somewhat disappears after crisis years of 2001 and 2002. We also find that public debt decreases the efficiency of the banks after the crisis years. Results suggest that public debt has negative effects on the financial development in Turkey