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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Paper provided by The Ratio Institute in its series Ratio Working Papers with number
96.
Length: 31 pages Date of creation: 25 Apr 2006 Date of revision: Handle: RePEc:hhs:ratioi:0096
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Find related papers by JEL classification: C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation F14 - International Economics - - Trade - - - Country and Industry Studies of Trade L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
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