Abstract
The objective of this paper is to analyze the effects of trade liberalization on private investment using a sample of companies operating in the manufacturing sector in Tunisia between 1997 and 2007. The estimation of the econometric panel data model using the system GMM technique shows that the liberalization of imported intermediate inputs stimulates private investment, while liberalization of domestic production favors the entry of imports that compete local products and decreases, therefore, profitability and corporate investment. The net effect of trade reforms remains positive. Taking into account the size of companies, results show that the response of investment to trade liberalization is relatively higher for SMEs compared to larger companies. The econometric analysis also suggests that trade liberalization exerts greater effects among local firms, while foreign firms do not adjust their investment levels following trade liberalization. Various robustness tests were carried out and confirmed these results.