Financial Development and Economic Performance Nexus in the Case of Islamic and Conventional Banks in Turkey: An Empirical Analysis

Islamic banking and finance is now considered as part of the global financial system by taking up important role in economic growth in many countries in which it operates. 1983 marked the emergence of Islamic banking in Turkey with first Islamic bank of Special Finance House set up in 1985. Currently, there are four Islamic banks or Participation Banks (PB) operating in the country having about 4% share in Turkey’s financial system. This paper, hence, aims to explore and examine the potential relationship between financial development in the form of Islamic and conventional banks and economic growth or performance in Turkey for the 2005-2012 period. The econometrics method based on various causality tests shows that there is a causal relationship between the real economy and the financial system in the whole but also between the economic growth and Islamic as well as conventional banking sectors. It is also located that the contribution of Islamic banking on economic growth benefits th