Price of nationalism: Evidence from cross-border shopping in Cyprus

This paper analyses the relationship between nationalism and cross-border shopping behaviour of households in a region with a history of bi-communal conflict. Traditional economic theories predict that households optimize their well-being, so patriotic feelings should be irrelevant in their consumption decisions. However, the theory of economic nationalism would predict lower cross-border activities in regions with high levels of nationalism. We test these opposing hypotheses using monthly data on gasoline sales, relative prices and the total number of border crossings on the island of Cyprus. Our results indicate that individual economic incentives prevail over nationalism. The cheaper the price of gasoline is on the ‘other’ side of the island relative to their own side, the higher the number of Greek Cypriots who cross borders. This result does not imply that those who cross are less nationalist but suggests that economic incentives might motivate a willingness to interact even with those whose nationalistic feelings would normally preclude it. According to contact theory, these economic interactions – especially when supported by political and social reconciliation efforts – have the potential to foster more peaceful relations.