Economies of Scale in the Tunisian Industries

To date, empirical investigations of trade liberalization under the conditions of increasingreturns to scale (IRS) and imperfect competition (IC) have either assumed or imposed themarket and productive structures necessary for such a model. However, of the recent IRS/ICmodels used to simulate the effects of trade liberalization none have empirically tested for thepresence of increasing return to scale prior to the analysis. With Tunisian data (1971-2004)and rigorous test procedures, we investigate evidence of IRS at the industry level. Using aneconometric approach based on the estimation of the translog cost function and itsassociated cost share equations, we identify the sectors characterized by increasing returnsto scale. Analysis of the results shows that specification of the model is sensitive to inclusionof time trend representing technology. The model accounting for technology did not fit thedata well for most sectors. The estimation results without time trend interactions are different.Here most of the sectors show signs of increasing returns to scale....