TRADE OPENNESS, BANK LOANS AND ECONOMIC GROWTH IN TURKEY AND AZERBAIJAN: AN EMPIRICAL ANALYSIS OF DYNAMIC EQUILIBRIA

İngilizce (OpenAlex)

One of the countries with which the Republic of Türkiye shares the strongest historical and cultural ties is the Republic of Azerbaijan. While relations between the two nations remained relatively limited until the 2000s, they gained significant momentum thereafter, driven by shifts in Turkish foreign policy. Against this backdrop, the present study investigates the dynamics of economic deepening between the two countries by examining the impact of bank loans to the private sector and trade openness on economic growth over the period 1992–2023. Methodologically, the analysis applies the ADF unit root test to assess the stationarity properties of the variables, the ARDL bounds test to explore long-run cointegration relationships, the Toda–Yamamoto causality test to identify causal linkages, and coefficient estimation to evaluate parameter effects. The empirical findings suggest that in Türkiye, bank lending to the private sector and trade openness are both bidirectionally linked with economic growth, whereas in Azerbaijan the relationship is more limited. Furthermore, coefficient estimates indicate that while both credit expansion and trade openness positively influence growth in Türkiye, it is trade openness in particular that exerts a strong and decisive effect on economic growth in Azerbaijan.