Intellectual Capital as an Engine of Growth: Analysis of Causality for North Cyprus Economy

Intellectual capital appears as the most important component of knowledge economy. The impact of intellectual capital on the general performance of the economy has been passing through labour productivity. It is very well known in the knowledge management literature that knowledge has become an engine of social, economic and cultural development in today's world. Intellectual capital creates a value and increases the competitiveness of a nation. Involvement of education in economic growth occurs through creation of new knowledge and transfer of knowledge and information. Better educated individuals will later become an innovator or creator of new technology. Schools provide the education necessary to understand this new information and technology. Education is a vital factor for accumulation of intellectual capital to reach economic growth. In order to measure causality between education and economic growth in North Cyprus, Engle-Granger causality test in VAR model could be applied to the investigated period. The paper aims at trying to find answer by questioning 'whether education causes to economic growth in North Cyprus? Or not' based on the education variables such as literacy rate, general and technical school enrolment and higher education enrolment ratio. At this point, the empirical part of the study analyses the relationship between education and economic growth in Northern Cyprus. As a small developing island with its eight universities, government assigning education is one of the locomotive sectors of North Cyprus economy. But islands have inadequate knowledge economy variables and have not yet constructed National Knowledge Management Strategy. Per capita income is following descending path, and economic performance not moving parallel with the educational progress. In conclusion, the reasons for this inefficient growth of the country will be discussed and by the light of the findings proposed suggestions will be made for North Cyprus.