Economic Growth in TRNC and Impact of Sectoral Development on Economic Growth

This study aims to investigate the relationship between economic and sectoral growth of TRNC economy to be able to produce policy recommendation for stable economic growth. The data set used in this study covering the years between 1977 and 2016 are obtained from TRNC State Planning Organization and calculated by using 1977 base year local currency Turkish Lira prices. According to the Phillips-Perron (PP), Augmented Dickey Fuller (ADF), Kwiatkowski-Phillips-Schmidt-Shin (KPSS) and Zivot-Andrews structural break unit root tests results for the stationarity of the variables the dependent variable GDP is integrated at first difference, I(1), while the independent varables are integrated at mix order either as I(1) or I(0). The long run and short run relationship among varaibles are investigated by employing ARDL Bounds test approach. Granger causality test results indicates a uni-directional Granger causality existing from GDP, agriculture sector, construction sector and manufacturing sector to services sector. Diagnostic tests which analyze serial correlation, normality, heteroscedasticity and the functional form of the model and the CUSUM and CUSUMQ tests for the stability of the coefficients in the long-run confirm that our results are reliable. Empirical results showed that manufacturing sector is the most effective sector behind economic growth in long run. Sustainable economic growth could be reached through the development of manufacturing and construction sectors in addition to the leading services sector and improved domestic employment. Economic growth policies should be designed to generate persistent effect in long run and priority should be given to the development of the manufacturing sector.