Global value chain participation and employment in Egypt: firm-level evidence using an IV approach

Purpose This study aims to examine the causal effect of global value chain (GVC) participation on manufacturing employment in Egypt at the firm level. Design/methodology/approach Using data from the 2020/2021 Egyptian Industrial Firm Behavior Survey by the Economic Research Forum, the study explores various modes of participation, including exporting, importing inputs, holding international certification and foreign ownership. To address potential endogeneity issues in ordinary least square estimates, the study employs an instrumental variable approach with an innovative set of instruments: whether access to foreign exchange, political stability and commercial and customs laws represent obstacles for firms to operate. Additionally, the presence of locally based multinational corporations among a firm’s clients is considered for higher GVC tiers. Findings The results indicate that GVC participation positively affects employment in manufacturing industries, with two-way trade having the most significant impact on job creation. Moreover, international certification and foreign ownership complement two-way trade, leading to a greater employment impact than trade alone. Practical implications Policymakers should promote GVC participation among firms in Egypt by improving transportation and logistics, reducing trade barriers and encouraging small enterprises to engage in GVCs. Originality/value This study contributes to the literature by being the first to estimate the causal impact of GVC participation on manufacturing employment in Egypt using a new firm-level dataset and instrumental variables.