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The Impact of Aid on the Economy of Northern Cyprus

Published online by Cambridge University Press:  01 May 2008

Ahmet Özyigit*
Department of Economics, Near East University, Nicosia, Cyprus; e-mail:


Since 1974, U.N. peacekeepers on the divided Mediterranean island of Cyprus have patrolled a buffer zone that divides the Greek-leaning, government-controlled south from the northern third, the self-declared Turkish Republic of Northern Cyprus (TRNC). The economy of Northern Cyprus resembles that of other small islands with negligible industrial production that rely on the service sector to generate income. What makes Northern Cyprus unique, however, is that the rest of the world does not acknowledge it as a separate political entity. This limits economic functions because the “country” cannot trade freely and depends on Turkey, the only nation to formally recognize Northern Cyprus.

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Copyright © Cambridge University Press 2008

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1 Craig Burnside and David Dollar, “Aid, Policies and Growth,” American Economic Review 90 (2000): 847--68; Paul Collier and David Dollar, “Aid Allocation and Poverty Reduction,” European Economic Review 46 (2002): 1475--1500; Paul Collier and Anke Hoeffler, “Aid, Policy, and Growth in Post-Conflict Societies,” World Bank Policy Research Working Paper No. 2902 (October 2002); Paul Collier and Jan Dehn, “Aid, Shocks, and Growth,” World Bank Policy Research Working Paper 2688 (October 2001); David Dollar and Paul Collier, “Can the World Cut Poverty in Half? How Policy Reform and Effective Aid Can Meet International Development Goals,” World Bank Policy Research Working Paper No. 2403 (November 1999).

2 James Bovard, “The Continuing Failure of Foreign Aid,” Cato Policy Analysis No. 65, 31 January 1986, (accessed 4 January 2008). Bovard suggests that foreign aid has helped only government bureaucrats and high-ranking officials in the developing world. Aid perpetuates inefficient and corrupt behavior as long as it keeps pouring into the country.