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1 econstor Mae Your Publications Visible. A Service of Wirtschaft Centre zbwleibniz-informationszentrum Economics Erdem, Erem; Tugcu, Can Tansel Article Business ethics and economic growth: An emirical analysis for Turish economy International Journal of Business and Economic Sciences Alied Research Provided in Cooeration with: Eastern Macedonia and Thrace Institute of Technology (EMaTTech), Kavala, Greece Suggested Citation: Erdem, Erem; Tugcu, Can Tansel (2015) : Business ethics and economic growth: An emirical analysis for Turish economy, International Journal of Business and Economic Sciences Alied Research, ISSN , Eastern Macedonia and Thrace Institute of Technology, Kavala, Vol. 8, Iss. 3, This Version is available at: htt://hdl.handle.net/10419/ Standard-Nutzungsbedingungen: Die Doumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecen und zum Privatgebrauch geseichert und oiert werden. Sie dürfen die Doumente nicht für öffentliche oder ommerzielle Zwece vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Doumente unter Oen-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and coied for your ersonal and scholarly uroses. You are not to coy documents for ublic or commercial uroses, to exhibit the documents ublicly, to mae them ublicly available on the internet, or to distribute or otherwise use the documents in ublic. If the documents have been made available under an Oen Content Licence (esecially Creative Commons Licences), you may exercise further usage rights as secified in the indicated licence.

2 International Journal of Business and Economic Sciences Alied Research 8(3): 7-12 IJBESAR International Journal of Business and Economic Sciences Alied Research 8(3): 7-12 htt://ijbesar.teiemt.gr Business ethics and economic growth: An emirical analysis for Turish economy Erem Erdem 1 and Can Tansel Tugcu 2 1Erciyes University, Kayseri-Turey, eremerdem@erciyes.edu.tr 2Corresonding Author, Adeniz University, Antalya-Turey, cantanseltugcu@adeniz.edu.tr Abstract Purose The roots of the science of modern economics are originated from the ideas of Adam Smith who is not a ure economist but a moralist-hilosoher. Basic concets in the Wealth of Nations which is erceived as the hand boo of economics deend on the arguments that Adam Smith suggests in his Theory of Moral Sentiments. In this theory, business ethics as a art of the Law of Symathy aears as one of the factors that rovide the invisible hand to oerate roerly. In light of this roerty, it is ossible to assume business ethics as one of the comonents of the maret mechanism. In this context, this study aims to analyse the lin between business ethics and economic growth in the Turish economy. Design/methodology/aroach The study emloys bounced cheques and rotested bonds for reresenting the degradation of business ethics and tries to show how this degradation affects economic growth in the Turish economy for the eriod Findings Either illustrative or emirical results show that business ethics is an imortant determinant of economic growth in the Turish economy and damaging it negatively effects the growth rate of the economy. Research limitations/imlications One of the most restrictive things conducting the resent emirical analysis is the lac of various and longer data sets. Using different indicators in terms of business ethics with longer time san will definitely increase the reliability of the study. However, in the current form, results imly a olicy that is caable of limiting the failures of business ethics may boost the Turish economy u. Originality/value The results tend to suort the close lin between business ethics and economic growth. Keywords: Business ethics, Economic growth, Turish economy JEL Classification: O47 1. Introduction The roots of the science of modern economics are originated from the ideas of Adam Smith who is not a ure economist but a moralist-hilosoher. Basic concets in the Wealth of Nations which is erceived as the hand boo of economics deend on the arguments that Smith suggests in his Theory of Moral Sentiments. In this theory, business ethics as a art of the Law of Symathy aears as one of the factors that rovide the invisible hand to oerate roerly. In light of this roerty, it is ossible to assume business ethics as one of the comonents of the maret mechanism. When we come bac to modern macroeconomics, it is seen that Max Weber 7

3 Erem Erdem and Can Tansel Tugcu (1904) is the ioneering study that systematically analyzes the relationshi between business ethics and economic develoment. According to Weber s ideas, any ind of ethics is an imortant comonent of cultural heritage and religion. In this regards, he argues that cultural endowments which stem from strong religious beliefs could facilitate economic erformance. He also suggests that the basic dynamic which constituted the caitalism in northern Euroe, as transforming attitudes toward economic activity and wealth accumulation, is the Calvinist doctrine of redestination (i.e. Protestant Business Ethics). In the resent time, many of the eole in business sector may assume that ethical behavior is out of the range. Businessmen or women are assumed as entrereneurs who may dare anything for rofit. Customers are seen as eole who are ready for doing anything in order to buy goods and services at lower rices. However, Rea (2010) rejects this and gives some examles about how eole in the business environment act in ethical ways: It is not uncommon to observe customers who have been undercharged for goods volunteering this information to sho assistants. Many individual and firms ay the exected amount of tax on their income, desite oortunities to use tax looholes and avoidance mechanisms. Many eole go beyond what is strictly required in their emloyment contracts because they want to do a good job. Although it seems as a ersonal decision to act ethically, business ethics generally reflects an aggregate decision and it is all about the economy. In this sense, one may entitle business ethics as one of the drivers of the continuum of economic activities. Since economic activities are among the engines of economic growth, it may be concluded that business ethics may imact on the growth erformances of economies. Given this learning, Naude (2008) ut forwards two ethical guidelines for economic growth: Economic growth is desirable if the distributive effect increases the welfare of the oorest section in society in the medium term and creates a more egalitarian society in the longer term. If economic growth only increases the welfare of the middle and uer classes and leaves the oorest eole worse off, the social cost in the long run is too high. This is a controversial oint. But following the social contract tradition and notions of rioritarian justice strong ethical arguments can be made in favour of growth that is measured not in general terms, but by whether the osition of the worse-off has imroved. Economic growth is desirable when it is sustainable in the holistic sense of the word. If economic growth is only concetualized as emirical data and not also in terms of its social and ecological effects, we will fail the moral demands of inter-generational justice. In governance discourse one could say that economic growth should be embedded in trile bottom-line thining. The business of business is unfortunately not business alone. This study aims to analyze the lin between business ethics and economic growth in the Turish economy for the eriod To this end, the study emloys bounced cheques and tries to grahically illustrate the lin between the degradation in business ethics and economic growth, and rotested bonds and utilizes the Autoregressive Distributed Lag aroach to cointegration by Pesaran et al. (2001) for the investigation of the long-run effects of the degradation in business ethics on economic growth. 2. A brief note about Turish economy With her 800 billion dollars GDP in 2014, Turey is one of the 20 biggest economies of the world today. Esecially after exeriencing fundamental olitical and economic transformations in 1980 s and turning her face to the world as leaving inward-oriented 8

4 Business ethics and economic growth: An emirical analysis for Turish economy understandings fully behind, the country has faced with a raid imrovement. Table 1 below illustrates some macroeconomic facts about the Turish economy. Accordingly, GDP in 2014 is aroximately five times bigger than that is in GDP er caita in 2014 is aroximately 3.6 times bigger than that is in Turey has a large and active oulation and thus has a large labor force. However, the unemloyment is an imortant macroeconomic roblem for the economy. It seems that Turish olicy maers have achieved to solve inflation roblem. After the adotion of inflation targeting strategy, inflation rate has slightly fallen down. Turish economy is an active trader. However, the country is a net-imorter and this creates some disadvantages in terms of balance of ayments. Table 1: Some Macroeconomic Facts about Turish Economy GDP (Bio) GDPPC Poulation (Mio) Labor Force (Mio) Unemloyment Rate 7,6 6,5 10,6 11,9 9,9 Inflation (Consumer Prices) 88,10 54,90 10,13 8,56 8,85 Exorts (Bio) Imorts (Bio) Source: World Ban, World Develoment Indicators. Since Turish economy has a large body, are dangerous either for the imrovement of roblems faced in it are also big. In arallel the maret or the whole economy. Figure 1 with the subject of the resent study, there are shows the relation between bounced cheques some ethical issues that force marets not to (er 1000 eole) and GDP growth in Turish oerate roerly. In these circumstances, economy for the eriods Statistics channels of maret mechanism may be are in natural logarithms. It is clearly seen that broen down and the whole economy is there is a strong negative correlation between affected. two indicators. Given this learning, we can Bounced cheques are one of the most simly suggest that bounced cheques in common offences laguing a maret. They are Turish economy are among the factors that among the failures that reduce the level of negatively affect the growth rate of the business ethics in that maret. These failures economy. Figure 2: Bounced Cheques and Economic Growth Nexus in Turish economy GDPG -10 Source: Author s own 0 Cheques (er 1000 eole) 9

5 Erem Erdem and Can Tansel Tugcu ln GDPG a t ln GDPG 1 0 a ln GDPG 1i t i 2i t i i1 i0 i0 t 1 ln GFCF 2 t 1 a ln GFCF ln EMP 3 3. Data, methodology and results 3.1 Data The study is based on annual time series data covering the time eriod Data set includes annual GDP growth (GDPG), gross fixed caital formation in current US dollars (GFCF), total emloyment (EMP) and the value of rotested bonds (PB) in current Turish Liras. Data related to GDPG, GFCF and EMP were obtained from World Ban, World Develoment Indicator database, whereas PB is sourced from Turish Statistical Institute. 3.2 Methodology For investigating the long-run relations (cointegration) among the time-series variables, several econometric aroaches were develoed over the last three decades. For instance, while Engle and Granger (1987) uses two-ste residual-based rocedure for testing the null of no-cointegration, Johansen and Juselius (1990) uses the system-based reduced ran regression aroach. But all of these methods concentrate on the cases in which the underlying variables are integrated of order one. This situation inevitably involves a certain degree of retesting, thus introducing a further degree of uncertainty into the analysis of level relationshis. Pesaran et al. (2001) develoed a novel cointegration method which is nown as Autoregressive Distributed Lag (ARDL) aroach (i.e. the bounds testing aroach) to cointegration. Pesaran et al. (2001) ointed out the advantages of this aroach over other cointegration tests (e.g. Engle and Granger (1987), Johansen and Juselius (1990)). While other cointegration methods concentrate on the cases in which the variables are integrated of order one, the bounds testing aroach is alicable irresective of whether the underlying variables are urely I(0), urely I(1) or mutually cointegrated. Finally, Pesaran and Shin (1999) indicate that the ARDL aroach erforms better in small samle size and yields consistent estimates of the long-run arameters asymtotically distributed as standard normal irresective of the underlying variables are I(0) or I(1). The bounds testing aroach requires estimating the following ARDL reresentation: t 1 ln PB 4 a ln EMP 3i t 1 u t t i i0 a ln PB 5i t i (1) where Δ is the difference oerator, is the lag length, and u is the serially uncorrelated error term. The ARDL rocedure involves two stages. In the first stage, the null hyothesis of no-cointegration relationshi in the long-run is tested against the alternative hyothesis of cointegration. Testing cointegration relationshi is based on the F-statistic. Since the asymtotic distribution of this F-statistic is non-standard irresective of whether the variables are I(0) or I(1), Pesaran et al. (2001) therefore tabulated two sets of critical values. One set assumes that all variables are I(0) and other set assumes that all variables are I(1). This rovides a bound covering all ossible classifications of the variables. If the calculated F-statistic lies above the uer level of the bound, the H0 is rejected, suorting cointegration relationshi in the long-run. If the calculated F-statistic lies below the lower level of the bound, the H0 cannot be rejected, indicating lac of cointegration. If the calculated F-statistic falls between the bounds, then the test becomes inconclusive and the error-correction term in this case is used to determine the existence of cointegration. If a negative and significant error-correction term is obtained, the variables are said to be cointegrated. Once a long-run relationshi is established, the second stage of the ARDL rocedure is to estimate the error-correction model (ECM) from equation (1). The ECM can be written as follows: 10

6 Business ethics and economic growth: An emirical analysis for Turish economy EC t1 ti ti ti i1 i0 i0 i0 u t ln GDPGt ln GDPG ln GFCF ln EMP ln PB ti (2) where is the error correction arameter and EC is the residual obtained from equation (1). Since cointegration among the variables does not ensure the stability of the arameters, one should rovide that the cointegration arameters are stable over the time. In this regard, cumulative sum (CUSUM) and cumulative sum of squares (CUSUMSQ) tests for arameter stability develoed by Brown et al. (1975) are widely utilized with the ARDL modeling framewor. These tests are based on the recursive regression residuals. The CUSUM and CUSUMSQ statistics are udated recursively and lotted against the brea oints of the model. If the lot of these statistics falls inside the critical bounds, one decides that the coefficients from the estimated model are stable over the time. 3.3 Results ARDL estimation results resented in Table 2 show that rotested bonds are cointegrated to the growth rate of GDP and all coefficients are stable over the time. Analysis has no failure in terms of serial correlation, heteroscedasticity, normality and functional missecification. The long-run coefficients tae lace under Panel B indicate that a ercent increase in the value of rotested bonds decreases the growth rate of GDP by 2.41 ercent. The coefficient of PB is statistically significant even at 1 ercent level of significance. Finally, negative and statistically significant error-correction arameter reveals that the model has stable equilibrium in the long-run. Table 2: Results of Emirical Analysis (Deendent Variable: lngdp) Panel A: Cointegration F-stat Error-correction Parameter [0.000] Panel B: Long-run Coefficients Constant [0.090] lngfcf [0.001] lnemp [0.427] lnpb [0.006] Panel C: Diagnostic Checing Adjusted-R Serial Correlation a [0.063] Heteroscedasticity b [0.195] Normality c [0.940] Functional Form d [0.192] Panel D: Stability Checing CUSUM CUSUMQ Stable Stable Note: The critical values for F-statistic are ( ) for 10 ercent, ( ) for 5 ercent, and ( ) for 1 ercent level of significance, obtained from Table CI(iii) Case III in Pesaranet al. (2001: 300). 11

7 Erem Erdem and Can Tansel Tugcu a: The Breusch Godfrey LM test statistic for no serial correlation. b: The White s test statistic for homoscedasticity. c: The Jarque Bera statistic for normality. d: The Ramsey s Reset test statistic for regression secification error. Numbers in bracets are -values. 4. Conclusion In this study, the lin between business ethics and economic growth was investigated in terms of the illustrative lin between bounced cheques and the growth rate of GDP by using time series data covering the time eriod , and cointegration relationshi between rotested bonds and growth rate of GDP by using time series data covering the time eriod For the latter urose, the study has utilized the ARDL aroach to cointegration. Either illustrative or emirical results showed that roviding business ethics ositively affects the growth rate of the Turish economy. Proxies that corrut business ethics (i.e. bounced cheques and rotested bonds) are among the factors that decrease the growth rate of GDP. For instance, there exists a very strong negative correlation between bounced cheques and the growth rate of GDP, and the long-run relation between rotested bonds and the growth rate of GDP is statistically significant and negative. These results imly a olicy that is caable of limiting those failures may boost the economy u. One of the most restrictive things conducting the resent emirical analysis is the lac of various and longer data sets. Using different indicators in terms of business ethics with longer time san will definitely increase the reliability of the study. Thus, if this roblem is solved, it would be a good oortunity for the future researches. References Brown, R.L., Durbin, J. and Evans, J., 1975, Techniques for testing the constancy of regression relationshis over time, Journal of the Royal Statistical Society: Series B, 37, 2, Engle, R.F. and Granger, C.W.J., 1987, Cointegration and error-correction: reresentation, estimation and testing, Econometrica, 55, Johansen, S. and Juselius, K., 1990, Maximum lielihood estimation and inference on cointegration with alications to the demand for money, Oxford Bulletin of Economics and Statistics, 55, 2, Naude, P., 2008, The ethical considerations of economic growth, htt://mg.co.za/article/ theethical-considerations-of-economicgrowth, ( ). Pesaran, M.H. and Shin, E., 1999, An autoregressive distributed lag modelling aroach to cointegration analysis, Strom, S., Econometrics and Economic Theory in the 20th Century, Cambridge University Press, Cambridge, Chater 11. Pesaran, M.H., Shin, Y. and Smith, R.J., 2001, Bounds testing aroaches to the analysis of level relationshis, Journal of Alied Econometrics, 16, Rae, D., 2010, Is ethics imortant for economic growth, Boston, J., Why Ethics Matters, Australian National University Press, Canberra, Chater 11. Weber, M., 1904, The Protestant Ethic and the Sirit of Caitalism, George Allen &Unwin Press 1976 Ed., London, UK. 12