Entry, Exit, Resource Reallocation and Productivity Growth in the Tunisian Private Manufacturing Industries

This paper is motivated by the growing empirical evidence suggesting large firm dynamism in all market oriented economies and the significant role that this dynamism plays in promoting reallocation of resources and ultimately productivity growth. It attempts to make two major contributions: circumventing shortage in firm demographics data in Tunisia by merging, for the first time in Tunisia, administrative files based on continuous report of fiscal affiliation of private firms with the register of firm affiliates at the National Social Security Fund in order to compute series on the number of entering (new), exiting (out of business) and total firms with 10 workers or more, by year and by industry over the 1996-2004 period; and providing a comprehensive picture of the magnitude, characteristics and effectiveness of the creative destruction process and making the first attempt at understanding the sources of observed variations across industries in Tunisia. The empirical findings of the paper establish three basic stylized facts: a relative high firm churning in all Tunisian manufacturing sectors, firm turnover is principally driven by small- and medium-sized firms and the creative destruction process is the predominant factor driving entry and exit in many manufacturing industries. Moreover, the combination of heterogeneity in productivity and easy entry and exit of firms is found to characterize the manufacturing sector in Tunisia. Accordingly, obstacles to free entry and exit slow the reallocation process and are likely to slow productivity growth.