Tunisia’s Startup Act Spurs Innovation and Jobs: A Model for Developing Economies

In a groundbreaking study by researchers from Columbia University and the World Bank, Tunisia’s Startup Act has been evaluated as a rare example of state-driven innovation policy in a developing economy. The research, spearheaded by Nadia Ali, Massimiliano Calì, and Bob Rijkers, and supported by the Economic Policy Global Department and the Development Research Group, presents rigorous quasi-experimental evidence of how targeted policy interventions can influence the survival and performance of young, high-tech firms. Introduced in 2019, Tunisia’s Startup Act confers a “start-up label” to selected firms, unlocking a range of incentives such as corporate tax exemptions, full coverage of social security contributions, access to foreign currency accounts, and preferential customs procedures. This initiative aimed to stimulate entrepreneurship and job creation in a country where youth unemployment exceeded 37% by 2022.

Turning the Label into Opportunity

The study analyzed a dataset of 466 firms that applied for the startup label between March 2019 and December 2021. A distinctive feature of the Startup Act is its three-stage selection process, which includes a pitch round for firms that judges could not decisively accept or reject in the initial evaluation. These 118 firms formed the “Pitch Sample”, a quasi-randomized group that provided researchers with a robust comparison to evaluate the causal impact of receiving the label. Using a difference-in-differences approach, the study measured performance metrics such as survival, employment, wage bills, sales, and profits, with data sourced from the Tunisian National Enterprise Register, a government-maintained administrative database.

The findings are compelling. Firms that received the label were 18 percentage points more likely to survive through 2022 compared to those that did not. On average, they added two more workers, more than doubling their initial employment base, and increased their annual wage bill by over 69,000 Tunisian Dinars (around USD 23,000). Though effects on sales were positive but statistically imprecise, and profits remained unchanged or slightly negative, the core objective, job creation and survival, was clearly met. These results held across multiple estimation models and were particularly strong within the Pitch Sample, where firms were most comparable.

Relief from Red Tape and Rising Costs

Founders cited several elements of the program as especially beneficial. Chief among them were the full coverage of social security contributions, access to foreign exchange accounts without Central Bank approval, and streamlined customs procedures. These incentives significantly reduced both administrative burden and financial costs. The advantages were most pronounced among firms dependent on imports or engaged in manufacturing, which typically face heavier regulatory friction. The study’s heterogeneity analysis showed stronger program impacts in these sectors, suggesting that the benefits tailored to ease international trade and labor expenses played a key role in driving firm growth.

Interestingly, offshore firms, those already benefiting from Tunisia’s export regime and foreign exchange exemptions, saw smaller marginal gains from the program. In contrast, onshore firms, which had no prior access to these advantages, experienced larger improvements in survival and employment outcomes. This highlights how the Startup Act filled critical gaps in Tunisia’s entrepreneurship ecosystem by providing equitable access to essential business services for local firms.

Pandemic-Resistant Policy

A significant portion of the study’s analysis period overlapped with the COVID-19 pandemic, a time marked by economic contraction and uncertainty. Tunisia’s GDP shrank by 9% in 2020, making it crucial to examine whether the program’s effects were influenced by the pandemic. The researchers conducted rigorous robustness checks by excluding high-stringency lockdown periods, analyzing firms in sectors more or less exposed to pandemic-related demand and supply shocks, and comparing outcomes across essential and non-essential industries. Across the board, the program’s positive impacts on survival and employment remained consistent. When quarters with the most stringent lockdown measures were excluded, the effect sizes on employment and wage bill increased slightly, suggesting that the Startup Act may have helped cushion the economic blow of the pandemic.

From Evidence to Efficiency

To determine whether the Startup Act was worth its cost, the researchers conducted a back-of-the-envelope cost-benefit analysis. The largest cost driver was the government’s payment of social security contributions on behalf of the startups, followed by stipend payments to founders and forgone corporate tax revenues. These were partially offset by increased personal income tax from new hires. Based on their preferred sample, the estimated annual cost per firm was around TND 29,693 (USD 9,898), while the average annual economic benefit, largely in the form of increased wages and stipends, totaled TND 79,360 (USD 26,453). This translates to a short-term return of TND 2.68 for every dinar spent and a job creation cost of approximately USD 4,869, significantly lower than similar initiatives in high-income countries.

A Scalable Model for the Global South

The Tunisia Startup Act offers one of the most compelling policy case studies for how governments in developing countries can support innovation without relying on traditional venture capital models. Unlike startup accelerators or incubators, which often focus on mentorship and equity investment, the Tunisian model centered on administrative facilitation, labor cost relief, and export incentives. The evidence demonstrates that these tools, when bundled effectively, can help nascent firms survive, hire, and scale. The label’s signaling value may have also helped startups secure further financing, though this effect appears secondary to the direct financial and regulatory benefits.

While the study stops short of evaluating long-term impacts, its early findings suggest a promising policy path forward for governments looking to harness entrepreneurship as a driver of inclusive growth. With careful targeting, robust evaluation, and context-specific design, the model pioneered in Tunisia could well serve as a blueprint for innovation policy across the Global South.