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Effects of Trade Liberalization on Domestic Prices: Some Evidence from Tunisian Manufacturing

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  • Saggay, Ali

    ()

  • Heshmati, Almas

    ()
    (Ratio)

  • Adel Dhif, Mohamed

    ()

Abstract

This paper presents estimates of the competitive effects of trade liberalization on domestic pricing behaviour of Tunisian manufacturing industries. The theoretical framework is based on a dynamic flexible adjustment model of price determination in a small open economy. It investigates the process of adjustment in price level toward a desired level. The adjustment process is both industrial and time-specific. The empirical results show that, in the long run, domestic price responds greatly to import penetration, followed by demand pressure. There was a negative effect from import competition on domestic price. Trade policy is a viable policy option to promote competitiveness.

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Bibliographic Info

Paper provided by The Ratio Institute in its series Ratio Working Papers with number 96.

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Length: 31 pages
Date of creation: 25 Apr 2006
Date of revision:
Handle: RePEc:hhs:ratioi:0096

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Keywords: dynamic model; domestic price; trade liberalization; panel data; speed of adjustment; Tunisia;

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