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

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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.

Suggested Citation

  • Saggay, Ali & Heshmati, Almas & Adel Dhif, Mohamed, 2006. "Effects of Trade Liberalization on Domestic Prices: Some Evidence from Tunisian Manufacturing," Ratio Working Papers 96, The Ratio Institute.
  • Handle: RePEc:hhs:ratioi:0096
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    More about this item

    Keywords

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

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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