The Impact of Trade and Financial Openness on Operational Efficiency and Growth: Evidence from Turkish Banks

TL;DR

This study investigates how trade and financial openness influence Turkish banks' efficiency and growth from 2010 to 2023, highlighting the positive effects of openness on banking performance and the negative impact of poverty.

Contribution

It provides empirical evidence on the positive effects of trade and financial openness on Turkish banks' efficiency and growth, using CAMELG-DEA and dynamic panel data methods.

Findings

Trade openness significantly improves banking efficiency.

Financial openness enhances bank growth through capital flows.

Poverty negatively affects bank performance.

Abstract

This paper examines the relationship between trade and financial openness, as well as the operational efficiency and growth of Turkish banks, from 2010 to 2023. Utilizing CAMELG-DEA and dynamic panel data analysis, the study finds that increased trade openness significantly enhances banking efficiency, primarily due to heightened demand for banking services related to international trade. Financial openness further boosts growth by facilitating capital flows, expanding banks' credit portfolios, and increasing fee income from cross-border transactions. However, poverty levels have a negative impact on bank performance, reducing financial intermediation and innovation opportunities. The results underscore the crucial role of trade and financial openness in fostering banking sector growth in developing economies.