Causality between agriculture and economic growth in a small nation under political isolation

Abstract

Purpose - To analyze the impact of agricultural sector on the economy of North Cyprus, which suffers from political problems and drought over the years. Design/methodology/approach - Annual data covering 1975- 2002 period has been used to find the direction of causality in Granger sense between agricultural growth and economic growth after employing unit root tests to see if the variables under consideration are stationary. Findings - Results of the present study first suggest that agricultural output growth and economic growth as measured by real gross domestic product growth are stationary at their levels, thus, they are naturally co-integrated. They are in long run equilibrium relationship. And secondly, there is feedback relationship between these variables that indicates bidirectional causation among them in the long run period. Research limitations/implications - A more expanded data can be used for further comparison. Furthermore, a future study can be done for other islands to make comparison across themselves. Practical implications - This study has shown that although North Cyprus suffers from political problems and drought in the agriculture sector, this sector still has an impact on the economy. Thus, effective policies related with this sector should be developed by authorities. Building pipelines from Turkey, which are at the agenda of North Cyprus and Turkish governments over the years should immediately put into action. This will have enormous impact on both sides of the island on the way to a solution in Cyprus problem. Originality/value - This study is the first of its kind which analyzes the relationship between agricultural output and economic growth in a small island which has a closed economy and is politically non-recognized state. Furthermore, it is a rare study made for small islands.