The aim of this study is to investigate the export-led growth, import-led growth and foreign debt sustainability hypotheses in the case of Tunisia by using annual time series data for the period 1960-2008. Autoregressive Distributed Lag (ARDL) approach is employed to determine the long-run relationship or direction of long-run causality between exports, imports and GDP, and the strength of causal relationship is examined by using variance decomposition method. The results indicate unidirectional causality from exports to economic growth and bidirectional relationship between imports and economic growth. Thus, both export-led growth and import-led growth are valid for Tunisia. On the other hand, there is bidirectional association between exports and imports. The long-run elasticity of exports with respect to imports is 1.02 and long-run elasticity of imports with respect to exports is 0.86. Thus, foreign debt is weakly sustainable in the case of Tunisia. The empirical findings of the study are important for policy makers of Tunisia in the formulation of trade policies.

The integration of Tunisia to the global economy was preceded by a liberalization process undertaken by the government since 1988 in order to enhance economic growth and promote efficiency in different sectors of the economy. The measures of liberalization were materialized by the introduction of Tunisia to the General Agreement on Tariffs and Trade (GATT) in 1990 and its recognition as an original member of the World Trade Organization (WTO). The Association Agreement with the European Union (AAEU) implemented in 1998 was the pivotal event in terms of trade liberalization actions which led to a gradual settlement of free trade zone within a maximum period of transition of 12 years. The exports and imports benefitted from this association through the progressive removal of quantitative restriction against a free movement of goods between the Mediterranean countries; hence the European markets could be accessed without tariffs. The AAEU was sustained by an industrial restructuring program (1996-2000) with the objective of promoting the exportations by improving the competitiveness of firms and providing a favorable environment to the foreign investors. The actual trade policy of Tunisia is characterized by a considerable reduction in tariffs, import restrictions and with the reallocation of import substituting outcome into export industries (Jbili and Enders, 1996; and World Bank, 2010). These ambitious economic reforms aimed to make Tunisia an export-oriented country and the expected results were also drawn. Indeed, exports increased from US$6.83 bn in 1996 to US$12.4 bn in 2008. The real Gross Domestic Product (GDP) during the same period reached a high level of US$28.3 bn in 2008 against US$15.8 bn in 1996.

The impact of export promotion on the GDP growth has been widely investigated. Such a relation is referred to as the export-led growth hypothesis, which stipulates the existence of positive effects of export enhancement on the overall economic growth. The examination of the export-led growth, import-led growth and foreign debt sustainability hypotheses is important for many reasons. First, it serves as an indicator for the government, of the efficiency of the regulations and reforms undertaken as well as guidance for policy making and planning. Second, export-led growth reflects the health of the external environment within which the trade of the country is evolving. Third, export-led growth and import-led growth allow for country's classification with respect to the measures to which trade promotion is fixed within an association or arrangement between a group of countries, such as the Great Arab Foreign Trade Area (GAFTA).

Monetary Economics Journal, Autoregressive Distributed Lag, Gross Domestic Product, GDP, World Trade Organization, WTO, Industrial Restructuring Program, Vector Error Correction Model, Trade Liberalization, Economic Growth, Foreign Debt, European Union, Variance Decomposition.