# **1. Introduction**

This paper examines the dynamics and the characteristics of high-growth firms (HGFs) in Tunisia. There are different definitions of HGFs, most of them focusing on a population of firms that achieves outstanding growth performance in terms of turnover or number of employees. We focus on the number of employees and compare three different definitions. For these definitions, we document three sets of stylized facts for HGF in Tunisia. First, we show the share of HGFs over time, and across sectors. Second, we describe their dynamics in terms of entry and survival rates, growth, and jobs generation across different firm age cohorts. Third, we analyze the firm characteristics associated with high-growth status. Our results suggest that high-growth status is negatively associated with firm size and age, although there is a non-linear relationship with age,<sup>5</sup> and positively associated with trade (exports and imports) and foreign ownership of the firm. Although they do not infer a causal relationship, these associations are statistically significant across different high-growth definitions, even after controlling for sector, region, or firm-level fixed effects.

Understanding the reasons why some firms manage to grow fast and what can be done to facilitate this process is a key policy question for developing countries. If effective policy interventions could lead to more firms achieving high-growth performance, they could increase the number of jobs, revenue, taxes, and other economic benefits, such as higher productivity, export performance, and better salaries, which correlates with larger firms.<sup>6</sup> Only a small share of firms achieves high growth, and only few of them manage to maintain this status over consecutive years, for a longer period of time. Yet, evidence from the United States suggests that young high-growth firms represent a significant chunk of new jobs created in the economy over time (Haltiwanger et. al., 2013, 2017). Despite the relevance of HGFs, there is lack of knowledge about what are the key characteristics of these firms and their growth dynamics, particularly in developing countries.

To analyze the dynamics of HGF in Tunisia, we use the Tunisian Statistical Business Register, namely the _Répertoire National des Entreprises_ (RNE), collected by the National Institute of Statistics in Tunisia ( _Institut National de la Statistique_ ). The RNE results from merging various administrative data using a unique identifier at the firm level. It provides information on number of employees, age of the firm, foreign ownership, _offshore_ tax incentive status, and trade status for all registered firms in Tunisia. The data cover the 1996-2015 period, with almost 1.2 million firmyear observations, which are reflected in a firm-level panel data set with an average of 60,000 firms per year.

The analysis suggests that HGFs represent between 9% to 10.5% of firms in Tunisia, on average, in the last 17 years, depending on the definition used. We show that the share of HGFs differs across definitions, but it is remarkably stable over time and weakly correlated with GDP growth. High-growth status is more prevalent among firms in the following sectors: computer and

> 5 Although the age coefficient is negative, the age square coefficient is positive.

> 6 For example, if 1,000 small firms, with 10 employees each, manages to grow 20% per year over 10 years, their number of jobs would increase from 10,000 to almost 62,000 over this period.

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