Proceedings of the 12th European Conference on Knowledge ...

Behiye Çavuşoğlu and Mustafa Sagsan
<strong>of</strong>ten had a relatively large foreign trade. The trade to GDP ratio used to measure <strong>the</strong>
dependency <strong>of</strong> <strong>the</strong> small economies on world market and also define <strong>the</strong> openness to <strong>the</strong> world
market. We can easily say that <strong>the</strong>se small economies mainly dependent upon foreign trade.
Most <strong>of</strong> <strong>the</strong> small island economies facing with chronic trade deficits which generally financed by
<strong>the</strong> foreign aids.
Diseconomies <strong>of</strong> scale in production, investment, education and administrative sciences are also
problems.
High rate <strong>of</strong> transportation cost.
Heavy dependency on government activities as a major source <strong>of</strong> income and employment.
Some small island countries are also dependent on <strong>the</strong> monetary authorities <strong>of</strong> industrial
countries, such as <strong>the</strong>y do not have an independent currency and monetary policies.
While listing <strong>the</strong> main characteristics and problems <strong>of</strong> small island economies, <strong>the</strong> paper also pointed
out <strong>the</strong> economic system <strong>of</strong> TRNC as a small island economy. In order to determine NKMS based on
knowledge economy with <strong>the</strong>ir indicators, <strong>the</strong> economic growth models allow us to understand small
island economy.
2.4 Economic growth models and <strong>the</strong> relationship with knowledge economy
In history <strong>of</strong> economic thought, growth models were favored by <strong>the</strong> both historians and economists.
While investigating <strong>the</strong> growth models, it is inevitable to recognize <strong>the</strong> technology is a common factor
for economic growth. To increase <strong>the</strong> productivity <strong>of</strong> <strong>the</strong> firm is only possible to adopt <strong>the</strong> new
technological improvements to <strong>the</strong> production process <strong>of</strong> <strong>the</strong> firm. The term 'new economy' which also
called 'knowledge economy' always mentions <strong>the</strong> knowledge is <strong>the</strong> most important production factor
which enable firm to improve its technological infrastructure and increase <strong>the</strong> production capacity.
The view taken by <strong>the</strong> contemporary literature on economic growth (Solow, 1956; Romer, 1990;
Schumpeter, 1911), technology considered ei<strong>the</strong>r endogenous or exogenous factor in production
process. As pointed out by Solow (1956), technological improvement is an exogenous model while
Romer (1990) advocated production process itself produces technology automatically, which
assumed that technological is endogenous factor. As Schumpeter (1911) stated technology is
propulsive force for economic growth and development <strong>of</strong> <strong>the</strong> countries.
According to Chavula (2010), <strong>the</strong> knowledge is at <strong>the</strong> heart <strong>of</strong> <strong>the</strong> development, which increases <strong>the</strong>
ability to take advantage <strong>of</strong> existing technologies and innovations, enhances competitiveness and
productivity. However, <strong>the</strong> author also mentioned this will dependent on <strong>the</strong> economic environment
such as educated labor force, modern information infrastructure, efficient innovations system and an
economic and institutional regime.
For economic success, while converting knowledge into innovation/technology and reach to growth,
<strong>the</strong> key item is <strong>the</strong> human capacity development. For Dahlman, Jorma, Pekka (2005), education is <strong>the</strong>
key element <strong>of</strong> <strong>the</strong> knowledge-based, innovation driven economy. It affects both <strong>the</strong> supply <strong>of</strong> and
demand for innovation. New technologies cannot be adopted in production without educated labor
force. Also, demand side is ano<strong>the</strong>r important factor that may not possible to being alive in <strong>the</strong>
absence <strong>of</strong> <strong>the</strong> educated customers. At this point <strong>of</strong> view, advanced skills and education allows
people to use physical capital more efficiently and also improve <strong>the</strong> capacity to adopt new
technologies. However, education itself does not enough. For developing countries, enhancing
knowledge is also crucial parallel <strong>of</strong> ICTs usage. ICTs allowed countries to gain competitive
advantage through innovations and technologies that creates global economic systems through
storing, sharing and analyzing <strong>the</strong> knowledge too.
3. The inferences for <strong>the</strong> TRNC based on <strong>the</strong> small island economy and <strong>the</strong>
knowledge economy
Before giving information on knowledge and small island economy for <strong>the</strong> TRNC, we would like to
mention about TRNC. TRNC is young and a new country. The root <strong>of</strong> Turkish Cypriot comes from <strong>the</strong>
Anatolia during <strong>the</strong> Ottoman Empire period (1571-1878). Cyprus is <strong>the</strong> third largest island in <strong>the</strong>
Mediterranean Sea, after Sicily and Sardinia; it is <strong>the</strong> biggest island in <strong>the</strong> Eastern Mediterranean. It
lies 65 km to <strong>the</strong> south <strong>of</strong> Turkey and 112 km to <strong>the</strong> west <strong>of</strong> Syria, its closest neighbors. After an
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