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growth potential to Cyprus in 1960, but are all these variables exogenous?
Investment rates depend on economic opportunities which may in turn depend on
access to resources. Echoing the themes of new growth theory, savings are related
to income which, feeding into investment rates, may affect future economic growth.
Also size may be an important factor, either increasing or limiting the possibilities
of growth. Kuznets has acknowledged, in a negative way, the importance of
smallness 28 . Even then structure is still important but so too is location 29 ,
particularly when dealing with small économies.
Within these différent frameworks and constraints, three groups surfaced as possibly
shedding some more light on future Cypriot economic potential, had politicai
circumstances not intervened to divide the island, its people and its economy. The
search for peers increasingly focused on the analysis of économies either similar in
size and structure in 1960 or sharing a similar location, broadly sharing both a
similar income and a similar economic structure in 1960. Within these criteria two
particular alternatives presented themselves as the most tenable peer groups, a
similarly structured group of very small micro économies and a medium income
regional group sharing similar income profiles and growth rates. The latter group
(or groups) derived from an existing World Bank category: "More Developed
Mediterranean", which includes Cyprus. Without war and civil strife it seems even
more likely that Cyprus would experience (as it did anyway) the tourist boom. Its
location and its investment in human capital may have also led to the establishment
28 Justifying the lack of inclusion of small économies in his analysis of the components of economic
growth, Kuznets states that "I omitted ail countries with population of less than one million. This
seemed warranted because of the erratic character of the production structure of the heavily
dépendent splinter countries." Kuznets S. 1971. Economic Growth of Nations. Cambridge: Harvard
University Press, p. 108.
29 Reiterating many of the points listed above Jeffrey Sachs has said (in the Economist 29/7/96) that
"Studies of cross-country growth show that per capita growth is related to:
...the géographie and resource structure of the economy, with landlocked and resource-abundant
économies tending to lag behind coastal and resource-scarce ones. " as well as:
"the initial income level of the country with poorer countries tending to grow faster than richer
countries;
the extent of overall market orientation, including openness to trade, domestic market
libéralisation, private rather than state ownership, protection of private property rights, and low
marginal tax rates;
the national savings rate, which in turn is strongly affected by the government's own savings
rate..."
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