In search of new development model for Tunisia: assessing the performance of the offshore regime

Tunisia - 17 February 2018

The main purpose of this paper is to examine the offshore regime in Tunisia and to assess the overall effects of this export promoting strategy for the years 2002-2014. Using firm-level data, we look in particular at its impact on turnover, productivity, wages, job creation, profitability and survival of firms. We compare offshore firms to onshore firms to assess if the incentives that were provided to the former have been successful. Analysis of offshore premium on samples including all firms and only exporting firms show that both categories of offshore firms have a better performance for all indicators. Generally, the important gap between the performance indicators such as turnover, productivity and wages and the very high level of profitability displayed by offshore firms, all categories considered, compared to onshore firms points out that incentives given by the Tunisian Investment Code is benefiting more firms than to the country. When considering the specific example of offshore exporting and importing firms, performance is weaker than their onshore counterparts across the board, except in the areas of gross job creation and profitability. Lower productivity of two way offshore traders suggest that these firms are low performers and that they self-select in the offshore regime in order to cover their export fixed costs. The survival analysis highlights an increased probability that offshore two-way traders will exit the market once tariffs and tax exemptions privileges end, usually after 10 years. Thus, incentives given in the Tunisian Investment Code are attracting mainly firms in lower rungs of the Global Value Chains. Instead of incentives, Tunisia should rethink its Investment Code in favor of highly added sectors that requires more complex skills and capital. JEL Classification: F14, L15 Keywords: trade premium, trade policy, offshore firms

Author(s): Leila Baghdadi, Sonia Ben Kheder, Hassen Arouri