The impact of FinTech on economic growth in Türkiye: A novel FinTech index approach

Aim/purpose – This study aims to explore the impact of FinTech developments on Türkiye’s economic growth from 2012:Q2 to 2024:Q1. While FinTech offers faster, cheaper, and more flexible financial services, its rapid evolution may pose risks, such as economic instability and growth limitations, stemming from digital credit and speculative investments.

Design/methodology/approach – An index representing FinTech developments is constructed using the PCA method, incorporating eight distinct variables. Gross fixed capital formation, labor force, government expenditure, and inflation are included as control variables. The study employs the ARDL bounds testing approach to examine long-run relationships, and robustness checks are performed using FMOLS, DOLS, and CCR methods. Finally, causality relationships are investigated using the Toda–Yamamoto test.

Findings – The analysis reveals that FinTech developments and economic growth are closely linked in the long run, exhibiting a strong bidirectional causality relationship. However, FinTech has a dampening effect on economic growth, emphasizing its disruptive potential in Türkiye. These findings are consistent across alternative estimation methods.

Research implications/limitations – The study highlights the importance of regulating FinTech innovations to mitigate their adverse effects on economic stability. However, the research faces limitations, including the lack of comprehensive data that better captures the FinTech ecosystem and the inability to use panel data due to the single-country focus. Future studies could address these limitations by incorporating richer datasets or conducting cross-country analyses for broader insights.

Originality/value/contribution – This research contributes to the literature by developing a unique FinTech index and providing empirical evidence on its impact on economic growth in a developing economy. It underscores the critical role of effective regulation and the development of an inclusive financial ecosystem in ensuring sustainable growth.