EXPLORING THE LONG-TERM EFFECT OF TRADE OPENNESS AND FOREIGN DIRECT INVESTMENT ON ECONOMIC GROWTH IN TUNISIA: ANALYSIS USING THE AUTOREGRESSIVE DISTRIBUTED LAG MODEL

Abstract The objective of this paper is to assess the effects of foreign direct investment (FDI) and its combination with trade openness on Tunisia's economic growth. The theoretical literature shows that there is a near consensus on the positive effect of FDI on the economic growth of the host country. However, this effect depends on several preconditions, including the degree of trade openness of the country. In order to address this question, we deploy the "AutoRegressive Distributed Lag" (ARDL) approach based on macroeconomic data from Tunisia covering the period 1990-2023. The results obtained during this empirical investigation reveal that foreign direct investment exerts a positive and significant effect on economic growth for the period studied. Our estimation also shows a negative and significant effect of the interaction between FDI and trade openness. This finding suggests that, although FDI and trade openness are individually beneficial, their combination could generate potential adverse effects. This complexity can be attributed to various factors such as trade imbalances, excessive dependence on foreign capital or structural inefficiencies in the Tunisian economy. These results highlight the need for policy makers to modulate economic openness and foreign investment strategies, taking into account the country's specific dynamics. Developing integrated and balanced economic policies could maximize the benefits of FDI while mitigating the potential risks associated with excessive trade openness. GEL Classification: F10, F21, O40, J24, C22.