Cross-Border Trade Liberalization: The Case of Lokmaci/Ledra Gate in Divided Nicosia, Cyprus

In the divided Walled City of Nicosia, there are two separate markets: one in the Greek Cypriot South and one in the Turkish Cypriot North. The division is the result of the unresolved Cyprus Problem. However, UN-sponsored negotiations are gradually liberalizing trade as well as movement of people across the border. On 3 April 2008, the Ledra Street/Lokmaci Gate was opened, allowing people, tourists and shoppers to cross to the other side. This event was further stimulated by action on the part of various aid agencies, principally the European Union, United States Agency for International Development and United Nations Development Program, who had invested heavily in revitalization projects to restore historic and heritage sites in the area. These two complementary effects (i.e. revitalization projects and opening the Gate) have generated significant trade creation in the business district near the Gate. It is the overall aim of this paper to quantify the “trade creation effect”. The paper reports the results of a special survey of primary shop owners in the neighbourhood of the Gate in the northern part of the capital. The study finds empirical evidence of substantial trade creation, especially for Turkish Cypriots. However, this optimistic finding is clouded by the on-going bitterness of the last divided European capital surrounded by barbwires and minefields of the UN buffer zone that prevent maximum economic prosperity of a potential political settlement.