Essays on the determinants of firm productivity and openness, evidence from Tunisia

Economic growth per capita is ultimately driven by private sector growth; specifically, by productivity growth of existing firms and by improvements in allocative efficiency. Therefore, how to make firms more productive is an essential concern in the study of growth and development. This thesis consists of three essays that explore the determinants of firms' productivity using Tunisian firm surveys from 1997 to 2007. First, I evaluate the role of technology distance and exports in explaining productivity growth of manufacturing firms. I find strong evidence of convergence in productivity at the firm-level, both unconditionally and conditionally, whereas there is little evidence of such at the macro-level. While exporters' productivity premium is explained by self-selection, the further a firm lies behind the frontier, the greater the potential for technologies to be transferred through exporting. Second, I test whether internal (create) and external (buy) sources of innovation have different effects on productivity, and whether firms benefit from using both. I find that buying has a positive effect on productivity, whereas creating does not. There is no synergy from using both simultaneously. I consider the possibility that "creating" and "buying" substitute for each other when the effect of innovation requires a minimum investment. The estimation result using the Tobit model supports this assumption. Finally, I investigate how to measure service performance and whether the variation in service firm performance can be explained by foreign ownership. Using two related measures, total factor productivity (TFP) and markup, I demonstrate Tunisian service firm performance across subsectors and over time. I show that foreign-owned firms have higher TFP but lower markups than local firms, as foreign ownership serves as a channel of knowledge transfer and brings more competition into the market, but with large sectoral variations. All chapters are closely linked to each other as they conclude that economic openness, obtained through exporting, outsourcing innovation, and acquiring foreign ownership, is a major driver of productivity and support the predictions of endogenous growth theory.