ABSTRACT
This chapter delves more deeply into the root causes of the relative weaknesses in Tunisia compared to East Asia than in the previous chapter, focusing on political economy considerations lying behind the differences in policy implementation and adaptability. The chapter shows that, compared to East Asia (China, Indonesia, South Korea, Malaysia, Philippines, and Thailand), the balance in Tunisia has remained tilted toward heavier government interventions in the allocation of resources, and with insufficient emphasis on market development and innovation and insufficient competitiveness of its private sector. The chapter explores in detail the reasons behind the weak development of the private sector, highlighting the roles of political instability, competition from the informal sector, corruption and government regulations, inadequately educated labor force, and labor regulations. On the other hand, in East Asia, there has been a steady but clear upward trend in the roles of markets and private sector agents, such as business associations, in most of these various different areas and quite a few private firms have become world leaders. As a result, while several East Asian countries have become much more successful in avoiding mitigating circumstances, such as the Middle-Income Trap (MIT), by implementing better policies and strategies and taking better advantage of their comparative advantages over time, Tunisia's industrial policies, including the two-track system, and other horizontal policies failed to evolve with changing conditions.
