Working Paper No. 96. Ali Saggay, Almas Heshmati and Mohamed Adel Dhif (2006) Effects of Trade Liberalization on Domestic Prices: Some Evidence from Tunisian Manufacturing.

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.