Tunisia must move from a low value-addedand low cost economy to a higher value-added, knowledgeintensive economy in order to significantly reduceunemployment, its overriding challenge. This DevelopmentPolicy Review (DPR) provides a discussion of the key issuesand challenges that are involved in achieving this goal.Towards this end, it discusses trade integration, innovationpolicies and enabling environment reforms (macro stability,economic regulation and governance, financial sector andlabor market reforms and capital account opening) that couldfacilitate the structural transformation of the economy. TheDPR is organized as follows: chapter one reviews growth andemployment outcomes and challenges; chapter two discussesthe rationale for increasing the pace of structuraltransformation of the economy in order to boost growth andreduce unemployment; chapter three examines the strengthsand weaknesses of Tunisia's innovation system andstrategies and proposes reform options in light of theinternational experience; chapter four discusses key aspectsof Tunisia's global integration that could furthercontribute to innovation and productivity growth; chaptersfive discusses the key improvement in the enablingenvironment needed to support innovation and productivitygrowth (economic regulation, education sector reforms,financial sector reforms and labor market); finally, chaptersix discusses structural transformation issues in naturalresource-intensive sectors and examine the specific sectoralreforms needed to address the trade-offs between severalobjectives, including growth and natural resources preservation.
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