Deindustrialization and Trade Openness: The Tunisian Case

Although industrialization has long been considered crucial for economic development and growth, the economic landscape of many developed and developing countries has experienced a huge decline in the weight of the industry and manufacturing sectors over the last decades. This paper aims to shed some light on the phenomenon of deindustrialization – defined as a sustained decline in the share of industry, especially manufacturing, gross domestic product, and employment – in Tunisia. We use an autoregressive distributed lag bounds testing approach (ARDL) and data from 1998 to 2017 to investigate the impact of different factors (such as trade openness, economic development, competitiveness, productivity growth, FDI inflows, investment, innovation, and human capital) on the process of industrialization/deindustrialization. The descriptive analysis shows that the Tunisian economy started to deindustrialize recently at a low level of GDP per capita, which is a sign of premature deindustrialization. Furthermore, the empirical results reveal that the main factor behind deindustrialization in Tunisia is a lack of competitiveness; however, trade openness contributes positively to the process of industrialization.