Tunisian labor market responses to trade liberalization: A dynamic analysis

The impact of trade openness and technology transfer on the relative demand for skilled labor remains a puzzle. The empirical findings surrounding this question are in total contradiction with the prediction of traditional international trade theory. This paper addresses this puzzle by investigating the Tunisian economy. For this purpose, a database covering 12 Tunisian sectors from the period of 1983-2010, was constructed and a dynamic panel data method was employed. Empirical results indicate that trade openness positively affects skilled labor employment levels. Empirical results also show that the effects of changes in technology are ambiguous; on the one hand, advances in technology have positive effects mediated via export channels, but on the other hand, advances can have a negative effect mediated via imports. These empirical findings have important economic implications; for instance Tunisian economic policy should be oriented to improve a firm's competitiveness and labor market capacity to minimize the cost of trade liberalization in terms of employment losses.