Business Today Egypt (BT) July - August 2021

Opinion
Figure 1. Despite higher trade, unemployment still high and female labor force
participation (FLFP) still low
private sector-led growth.
Third, it is a vital part of the Middle East and
North Africa region, which experiences high
economic volatility, remains relatively undiversified
and dependent on a few commodities
that often see strong relative price swings, and
continues to be affected by security issues.
The results of our study suggest that there is
a broken link between trade and labor market
outcomes – enough so that Egypt might need to
rethink its export strategy.
A Reason to Rethink the Export Basket
Starting with how Egypt fared on the export
front after trade agreements, we use a gravity
model approach to predict bilateral trade flows
based on characteristics (like economic size
and geographic distance) that should typically
facilitate trade and to identify sectors and markets
for which Egypt seems to have untapped
potential. Our findings clearly highlight that
trade agreements tend to enhance trade and
Egypt has gotten more “bang for its buck” with
its trade agreements – that is, its exports following
trade agreements are even above internationally
estimated averages.
As for whether Egypt’s exports and labor
market are linked, we use a geography-based
Bartik (1991) approach to quantify exogenous
import demand shocks from the United States
and EU countries for Egyptian exports. Our
findings uncover the interaction between trade
and domestic labor market outcomes in Egypt –
clearly highlighting that trade does not connect
to domestic local labor markets in the same way
it does in other countries. At the local level, labor
market responses to export shocks differ
across regional labor markets in the short run,
Source: Authors’ elaboration, UNCOMTRADE data for 2018
and World Bank Databank, ILO’s estimations.
but preliminary evidence suggest that these effects
dissipate gradually and remain statistically
insignificant for most types of workers.
Why is the link between trade and labor markets
broken? Our study contends that one factor
is the composition of Egypt’s low-diversified
export basket in goods, with eroding global demand.
Oil exports account for almost a fourth
of its exports, followed by apparel, fertilizers,
and fruits – and since 2010, none of the nonoil
exports have managed take off. Another factor
is Egypt’s wage levels are one of the highest
among countries that export the same goods,
suggesting that it has a relatively weak comparative
advantage in currently exported goods.
Also, Egypt’s rate of participation in GVCs is
one of the lowest among its peers, rendering
backward linkages and employment opportunities
to a minimum.
As global trade faces a restructuring of GVCs
due to COVID-19 and increasing calls for GVC
regulations in the EU (a major trade partner for
Egypt), the urgency for Egypt to achieve better
labor market outcomes becomes more evident.
Part of its new trade strategy may well be to further
diversify its export basket and increase its
participation in GVCs to foster employment opportunities.
www.BusinessTodayEgypt.com July-August 2021
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