The Contribution of Participation Banks to the International Trade in Turkey: A Panel Data Analysis

Abstract

Innovations in the financial sector contribute to development of money and capital markets. When the financial sector expands, the real sector is also affected positively. Country economies can grow faster with driving force of financial markets. In fact, if the real sector extends abroad and foreign exchange flows into the country, the pressure on exchange rates can be alleviated. The emergence and development of Islamic finance can be considered as one of the financial innovations. A large amount of Islamic funds which are under the mattress, enter to financial markets through Islamic products and services. Participation banks which are the representative of Islamic finance in Turkey meet the funds needs of the real sector with the supply of funds. The aim of the study is to investigate the effects of Islamic banks on real sector and international trade. In this context, export was defined as a proxy of international trade and the impact of provided funds by participation banks on export was examined by panel data analysis. The dataset contains in 44 quarterly period over the years of 2008-2018. According to the results, the funds canalized into real sector by participation banks increase the export in Turkey. Even if there are numerous studies on the relationship between Islamic banks and economic growth, the studies about the effects of Islamic banks on international trade is limited availability. Because of this reason, it is thought that the study will contribute to the literature.