Convergence and Catching-up Hypotheses in Local Governments: A New Evidence from the North Cyprus Municipalities

Abstract

One of the most important aims for local governments is usually based on how they improve their own performance. This steps from growth of the population, scarcity of government resources, increased of the demand for essential government services and budget deficit as well as indebtedness. Local administrations are attempting to reduce the burden on these issues by enhancing their own performance. This paper empirically investigates the convergence hypothesis if the similar local governments within the country converge to the same long-run steady state by considering the five major Turkish Cypriot municipalities in the North Cyprus economy over the period 2004Q1-2019Q4 in terms of economic performance. The concepts of half-life and catching-up hypotheses are conducted to find the economic distance among the municipalities. The results indicate that the municipalities with the lowest number of people per staff, commonly converge to the group mean (Morphou and Iskele). Nicosia and Kyrenia municipalities are less productive than the other municipalities, but Famagusta municipality needs less years than Kyrenia and Nicosia to catch-up the leader one (Morphou municipality). The results also suggest that one of the most important reasons for being less productive is related with over-employment and non-qualified workers, so municipalities need to come up with a new strategy to recruit qualified staff for the most appropriate position. The second one stems from their activities which covered by a grant that the municipalities receive from the central government.