Toda-Yamamoto Causality Test Between SMEs Loans And Economic Growth: Evidence From Turkiye

Abstract

In Turkey, SMEs make up the great majority of businesses. Due to their contributions to production, employment, innovation, and export, SMEs are crucial to the process of economic growth. Yet, SMEs' production operations are hampered by financial insufficiencies, which weaken the link between them and economic expansion. For SMEs, who must depend on external financing because of equity capital deficiencies, the loan system is crucial. With the use of Turkey as an example, this study examines the connection between SME loans and economic growth. Analysis was conducted for three different categories, namely loans extended to micro, small, and medium-sized enterprises. Quarterly data for the 2007Q1-2022Q2 period were considered and the Toda-Yamamoto causality test was used. It was determined that the causal relationship between SME loans and economic growth differs depending on the size of the enterprises. The relationship between loans extended to micro-enterprises and economic growth is unidirectional and the direction of the relationship is from growth to loans. Although there is a bidirectional relationship between loans extended to small enterprises and economic growth, it has been found that there is no causal relationship between loans extended to medium enterprises and economic growth.