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

Behiye Çavuşoğlu and Mustafa Sagsan
unsuccessful and violent cohabitation experience under an unworkable constitution (Mallinson, 2005:
5-9), <strong>the</strong> Turkish Cypriot Community established its own state in 1983 under <strong>the</strong> name <strong>of</strong> <strong>the</strong> Turkish
Republic <strong>of</strong> Nor<strong>the</strong>rn Cyprus (TRNC, or North Cyprus), which is recognized only by Turkey.
International diplomatic efforts are underway in order to find a peaceful solution to <strong>the</strong> Cyprus
problem. The TRNC covers an area <strong>of</strong> 3,355 km2, which is approximately one-third <strong>of</strong> <strong>the</strong> island <strong>of</strong>
Cyprus. The population <strong>of</strong> <strong>the</strong> TRNC is 265,000 according to <strong>the</strong> 2006 Census. The political system <strong>of</strong>
<strong>the</strong> TRNC is parliamentary democracy (Sagsan and Yildiz, 2009: 411). TRNC has a small economy
and <strong>the</strong> country is a suitable based on our cases. There are also o<strong>the</strong>r countries which have a small
island economy such as Malta, Ireland, etc.
There are some reasons we have selected TRNC. The first one is TRNC have capacity to represent
<strong>the</strong> characteristic <strong>of</strong> small island economy. For economic growth, <strong>the</strong> country also needs to develop
appropriate NKMS based on <strong>the</strong> knowledge economy because it is also evaluated such a country
which is at <strong>the</strong> development stage. The characteristic <strong>of</strong> being small island economy is extremely
supported by TRNC. For example, trade to GDP ratio (export + import to GDP) in TRNC was 75,6% in
1990 and decreased to 45,1% in 2007 (State Planning Organization, 2010). TRNC is one <strong>of</strong> <strong>the</strong> small
island economies which always run trade deficits. The main financial instrument <strong>of</strong> <strong>the</strong> trade deficit <strong>of</strong>
TRNC is <strong>the</strong> foreign aids coming from Turkey. Because <strong>of</strong> <strong>the</strong> special condition <strong>of</strong> <strong>the</strong> TRNC
(isolation, embargoes ...), Turkey is <strong>the</strong> main country who send foreign aid. On February 2006, <strong>the</strong> EU
approved an aid regulation for <strong>the</strong> benefit <strong>of</strong> <strong>the</strong> Turkish Community, aimed at putting an end to <strong>the</strong>
isolation <strong>of</strong> <strong>the</strong> country and helping prepare for <strong>the</strong> reunification <strong>of</strong> <strong>the</strong> island. Unfortunately this aid
used for upgrading <strong>the</strong> infrastructure <strong>of</strong> SMEs, which was not enough to increase <strong>the</strong> competitiveness
<strong>of</strong> those firms. In TRNC 37,5% <strong>of</strong> <strong>the</strong> working population is working for government (State Planning
Organization, 2010). TRNC is using Turkey’s currency Turkish Lira, country not have its own
monetary policies.
3.1 Research methodology
The study assumed that <strong>the</strong> wealth <strong>of</strong> <strong>the</strong> nations depends on three important inputs which are
knowledge, technology and human resources. While measuring <strong>the</strong> impact <strong>of</strong> knowledge on
economic development <strong>of</strong> countries, <strong>the</strong> paper used knowledge variables such as economic incentive
regime, innovation, education capacity in <strong>the</strong> knowledge economy and information structure.
To measure <strong>the</strong> economic incentive regime, <strong>the</strong> model includes <strong>the</strong> factors which show <strong>the</strong> readiness
<strong>of</strong> <strong>the</strong> economic system to <strong>the</strong> absorption <strong>of</strong> <strong>the</strong> knowledge. At this point <strong>of</strong> view, cross sectional
endogenous growth model by Barro(1991) simplified and adapted to TRNC. While determining <strong>the</strong>
knowledge variables which affect <strong>the</strong> economy <strong>of</strong> TRNC, general knowledge variables tried to impose
but because <strong>of</strong> <strong>the</strong> lack <strong>of</strong> statistical data model is restricted. Trade openness, interest rate spread,
domestic credit for <strong>the</strong> private sector and tariff barriers. To measure <strong>the</strong> innovation, <strong>the</strong> model used
FDI inflows and outflows. Education capacity <strong>of</strong> country is measured by <strong>the</strong> literacy rate, gross
secondary enrolment ratio and gross territory enrolment ratio. The information infrastructure
measured by <strong>the</strong> help <strong>of</strong> fixed telephone lines per 100 population, mobile users per 100 population
and internet users per 1000 population.
3.2 Research design and data collection
The study assumed that countries wealth mainly depends on <strong>the</strong> independent inputs which are
knowledge, technology and human resources besides human capital. Knowledge variables should be
able to measure <strong>the</strong> knowledge use <strong>of</strong> <strong>the</strong> country. The study limited with <strong>the</strong> measuring <strong>the</strong> impact <strong>of</strong>
<strong>the</strong> knowledge variables on GDP per capita in TRNC and recommend <strong>the</strong> NKMS which will assist <strong>the</strong>
economic development path <strong>of</strong> <strong>the</strong> TRNC. Data collected annually from State Planning Organization
under <strong>the</strong> ro<strong>of</strong> <strong>of</strong> TRNC Prime Ministry. The main problem <strong>of</strong> <strong>the</strong> data collection was <strong>the</strong> availability <strong>of</strong>
data. The study cannot use all <strong>of</strong> <strong>the</strong> knowledge variables because <strong>of</strong> <strong>the</strong> lack <strong>of</strong> statistics.
3.3 The model
Cross-sectional endogenous growth model by Barro (1991) was analyzed <strong>the</strong> impact <strong>of</strong> knowledge on
<strong>the</strong> long term average growth rate <strong>of</strong> <strong>the</strong> African economies. The case <strong>of</strong> Barro (1991) concentrates
on <strong>the</strong> convergence in income levels. However, we are not primarily interested in convergence;
instead, we are interested in finding out <strong>the</strong> knowledge variables for <strong>the</strong> TRNC and examining <strong>the</strong>
effects <strong>of</strong> <strong>the</strong>m on economic growth <strong>of</strong> <strong>the</strong> island. Barro (1991) model imposed on 49 African
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