The Cyprus Peace Dividend Revisited is a new effort to quantify the value of a solution of the Cyprus problem: to the economy as a whole, to different sectors and to individuals. In so doing, it also updates the qualitative analysis and advances earlier efforts, by exploring new approaches and linking these to the existing economic literature on the topic.
In the Day After series, published between 2008 and 2010, Mullen, Antoniadou-Kyriacou and Oğuz-Çilsal made the first substantive attempt to quantify the commercial opportunities of a Cyprus settlement. The award-winning three-part series included the recurring (permanent) benefits, the combined recurring and solution-related benefits, and the benefits that would accrue to Turkey and Greece.
Much has happened to the economic environment since then, while subsequent natural gas finds offshore have also changed long-term prospects. Both parts of the island were significantly underperforming even before the recent economic crisis. In the period 2005-12, growth in total factor productivity (TFP)—a measure of the long-term prospects for growth—was negative in the north and barely positive in the south. This has created risky imbalances such as high current-account deficits and rising debt. Moreover, low TFP growth points to a continued future of very weak overall economic growth and high unemployment.
The dynamic impact of peace is considered in two ways: through a “top-down” approach known as Growth Accounting and through a bottom-up, sector-by-sector approach. In order to arrive at the “peace dividend”—the difference between economic activity with a solution and without a solution to the Cyprus issue—the authors take the geometric mean of these two effectively independent approaches.
The Report concludes that the accumulated peace dividend over 20 years would be approximately €20bn, with all-island GDP (at constant 2012 prices) rising from just over €20bn in 2012, to just under €45bn by 2035 (Year 20), compared with only €25bn without a solution. Annual average incomes at constant prices would be €12,000 higher by Year 20 with a solution than without one. The annual average growth rate would be 4.5% on average over 20 years, compared with just 1.6% without a solution, with the peak growth rates coming in the first ten years. The lift to real GDP growth rates would therefore be 2.8 percentage points on average each year.