Unexplored Potential of Intra-Cyprus Trade: the cost of a lingering conflict

Bartlomiej Kaminski
WSIiZ Working Papers
No 15.
The paper examines the Green Line (GL) trade, i.e., trade between Greek and Turkish Cyprus community, in the period following the opening of intra-Cyprus boundaries after Republic of Cyprus acceded to the European Union in 2004. Although the economic interaction is not limited to formal flows of goods but also encompasses movement of people including exports of labor and purchases of goods and services by individuals across the GL, the focus is solely on formal trade flows. An attempt is made to assess whether this trade has been in line with economic potential of respective communities. Data on GL trade show that: (a) this is mostly a one-way interaction with Turkish Cypriots taking advantage of better access created by the GLR; (b) consumers and producers on both sides of the island benefit from this interaction; and (c) trade in goods accounts for a very small portion of total TCC’s earnings and expenditures enabled by the GLR. An empirical examination of respective trade flows with the rest of the world gives estimates of suppressing effects of the existing arrangements governing GL trade. GL sales can easily increase by multiplies for both communities, but especially so for the GCc based on the empirical analysis presented in this report. But the potential is much larger as these are static estimates that take into account existing economic structures. Paper concludes with policy recommendations.
Keywords: regional integration, EU accession, bilateral liberalization; barriers to trade; technical barriers to trade; economic cost of conflict
JEL classification: F10; F14; F15
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