# **1. Introduction**

The past two decades have witnessed a growing integration of developing countries into global trade and global value chains (GVCs), sparking interest among policy makers and researchers in understanding the labor market consequences of this global integration. Consequently, a substantial body of literature has emerged, examining the relationship between trade and local labor market outcomes. However, the findings of these studies vary significantly across countries, underscoring the need for country-specific investigations.

This study aims to assess the relationship between Egyptian exports and labor market outcomes, contributing to a broader understanding of trade and labor markets. The Arab Republic of Egypt, as a prominent country in the Middle East and North Africa (MENA) region, offers a valuable opportunity for analysis due to several factors. Firstly, the MENA region experiences greater economic volatility compared to industrialized nations, as evidenced by fluctuations in aggregate output, private consumption, and investment (World Bank, 2012). Moreover, many MENA countries heavily rely on a limited range of commodities, leading to significant fluctuations in relative prices. Additionally, security concerns in the region, affecting not only the tourism industry but also foreign investment and labor markets, add to the complexity of the economic landscape.

Additionally, despite the challenging environment, Egypt has actively pursued trade promotion by entering into various trade agreements. In the early 2000s, Egypt established free trade agreements (FTAs) with the European Union (EU), the Agadir Agreement (including Türkiye, Jordan, Morocco, and Tunisia), and the European Free Trade Association (EFTA) countries comprising Iceland, Liechtenstein, Norway, and Switzerland. Furthermore, since becoming a member of the World Trade Organization (WTO) in 1995, Egypt has joined 11 preferential or regional trade agreements (RTAs). These agreements have resulted in a significant increase in export volume, providing an excellent context for assessing the impacts of trade on labor market outcomes.

Lastly, despite recent economic reforms, Egypt's labor market faces several challenges, including slow private-sector employment growth, a rise in informal employment, and increasing wage inequality. Notably, there is a persistent regional disparity in employment growth and job quality between Upper and Lower Egypt, as highlighted by the latest Labor Force Survey (LFS). Furthermore, labor-intensive manufacturing sectors such as garments and furniture have experienced declining employment shares, while low-end non-traded services such as construction, storage, and communication have witnessed growth.

Although existing literature on Egypt has extensively documented the direct effects of rising trade integration on labor and welfare outcomes, there are remaining gaps in estimating indirect impacts. For instance, Zaki (2011) demonstrates the positive effects of exports on aggregate employment and individual-level employment outcomes, specifically male wages, and female labor force participation. Using multiple rounds of the Egyptian Labor Market Panel Survey (ELMPS), Salem and Zaki (2019) examine the impact of trade reforms on informal and irregular workers in Egypt, revealing a positive association between tariffs and both informal and irregular employment. They argue that tariff increases force less productive informal firms