Delivering the Cyprus Peace Dividend

PRIO Report

Mullen, Fiona; Mustafa Besim & Michalis Florentiades (2020) Delivering the Cyprus Peace Dividend. PRIO Cyprus Centre Report: 1. Nicosia: PRIO Cyprus Centre.

The Cyprus Peace Dividend Revisited of May 2014 was the first attempt to quantify the peace dividend using a sector-by-sector forecast and a forecast for total factor productivity (TFP). This followed the three-part Day After series published by the PRIO Cyprus Centre, which pioneered the concept of a Cyprus peace dividend using different forecasting methodologies.

In this update, the authors argue that the divided economies of Cyprus have reached their limits in terms of potential. Without a solution of the Cyprus problem that unites two small markets, the economies of the Greek Cypriot community (GCC) and the Turkish Cypriot community (TCC) will continue to lack economies of scale, while the very large and promising new markets of Turkey for the GCC and the EU for the TCC will remain untapped. These factors will continue to act as a drag on competitiveness, productivity and job creation, especially for women and the young, and will leaveboth communities vulnerable to economic shocks. In addition, without the catalyst of a settlement of the Cyprus problem, both the GCC and the TCC will most likely continue to suffer from certain results of the Cyprus problem, manifesting themselves in instances of poor governance and the absence of checks and balances.

Even under very conservative assumptions, and under two different forecasting methodologies, the authors find that a united Cyprus settlement would generate a significant boost to tourism, construction, shipping and professional services, with the biggest prize of all going to wholesale and retail trade. Within the first 20 years of a solution of the Cyprus problem, the authors would expect average incomes – gross domestic product (GDP) per capita – to be €6,800 to €11,000 higher than they would be without a solution and economic size (GDP) to be €11 billion to €17.4 billion larger.Under their baseline scenario, real GDP growth would be, on average, 3.8% with a solution and only 2.3% under the status quo.

Reaching the higher end of the forecast will depend on the right mix of policies. These include careful preparation beforehand; ensuring robust institutions; a technical approach to transition periods; addressing potential winners and losers; and last, but not least – as demonstrated by growing international research – closing the gender gap.

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