TRADE AND GROWTH IN A NON-RECOGNIZED SMALL ISLAND STATE: EVIDENCE FROM THE TURKISH REPUBLIC OF NORTHERN CYPRUS

Abstract

This paper empirically investigates long-run equilibrium relationship and causality between international trade and economic growth in North Cyprus, which has a non-recognized state and suffers from the Cyprus problem for more than 40 years. Results reveal that long-run equilibrium relationship exists between international trade variables (exports and imports of goods and services) and economic growth in this small island state. The present study also validates the existence of export-led growth hypothesis in Northern Cyprus while it rejects the validity of import-led growth hypothesis. Finally, this study has shown that Turkish Cypriots should improve not only services exports but also merchandise exports in to contribute to its economy further.