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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. (JEL: C33, E31, F14, L60)

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Authors and Affiliations

  1. Laboratoire d’Economie et de Gestion Industrielle (LEGI), Ecole Polytechnique de Tunisie, La Marsa, Tunisie

    Ali Saggay

  2. The University of Kurdistan Hawler (Iraq) and College of Engineering, Seoul National University, Seoul, Korea

    Almas Heshmati

  3. Laboratoire d’Economie et de Gestion Industrielle (LEGI), Ecole Polytechnique de Tunisie, La Marsa, Tunisie

    Mohamed Adel Dhif

Authors
  1. Ali Saggay
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  2. Almas Heshmati
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  3. Mohamed Adel Dhif
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Correspondence to Ali Saggay.

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The authors would like to thank an anonymous referee and the Editor of the journal for reading the manuscript carefully and for their valuable comments and suggestions on earlier versions of this paper. However, responsibility for the content remains incumbent to the authors.

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Saggay, A., Heshmati, A. & Dhif, M.A. Effects of trade liberalization on domestic prices: Some evidence from Tunisian manufacturing. Int. Rev. Econ. 54, 148–175 (2007). https://doi.org/10.1007/s12232-007-0008-3

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