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This paper presents estimates of the competitive effects of trade liberalization on domestic pricing behaviour of Tunisian manufacturing industries. The theoretical framework is based on a dynamic flexible adjustment model of price determination in an open small economy. It investigates the process of adjustment in price level toward a desired level. The adjustment process is both industry and time-specific. The empirical results show that, in the long run, domestic price responds greatest to import penetration, followed by demand pressure. There was a negative effect from import competition on domestic price. Trade policy is a viable policy option to promote competitiveness