Impact of Competition on Total Factor Productivity, Efficiency and Technical Change: Evidence from Tunisian Manufacturing Firms
We use firm data over the period 1997-2002 and a non-parametric approach to estimate TFP and its components, and we use panel data econometrics, to determine the effects of competition.
Our results suggest that the dominant driving force of TFP was technical efficiency. The second source of total factor productivity growth which is technical change plays a negative role in the productivity growth until 2000; a timid technological progress was observed after 2000 in the Tunisian manufacturing.
We find that Competition had strongly positive effect on total factor productivity growth, efficiency improvement and technological progress.
Likewise, the existence of non-linear effect of the competition on TFP and its factors is verified. At low competition level, more competition raises TFP at the firm level; yet, with high levels of competition, a rise in competition has a negative impact on productivity. The Schumpeterian effect appears and the capacity of firm to innovate decreases.
To gain from competition, even at a high level of competition, Tunisian authorities must sustain firms to be more innovative.
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