Conference Paper
Shaping Egypt’s Sectoral Positioning in Global Value Chains: The Role of Bilateral Real Exchange Rate
No.
ERF32AC_227
Publisher
ERF
Date
May, 2026
Topic
F4. Macroeconomic Aspects of International Trade and Finance
F3. International Finance
F1. Trade
Global value chains (GVCs) have become a key mechanism for structural transformation in developing economies, yet benefiting from them depends not only on participation but also on upgrading into higher value-added activities. A central but underexplored question is whether exchange rate policy can support both deeper GVC integration and movement up the value chain. Egypt offers a particularly relevant case: over the past decades, the real exchange rate (RER) has been actively used as a policy instrument, while the country has simultaneously sought to expand its GVC participation and diversify its export base. However, empirical evidence on whether RER has fostered integration or upgrading remains limited. Using sector-level multi-regional input-output data from EORA over the period 1995-2022, this paper examines the effect of bilateral RER depreciation on Egypt’s sectoral GVC integration through forward and backward linkages and assesses the potential for sectoral upgrading. The findings show that RER depreciation increases GVC participation through both forward and backward linkages. Forward gains are strongest in primary sectors, while backward gains are concentrated in high-tech sectors. Yet, RER alone does not generate upgrading. Once foreign knowledge embedded in imported inputs is accounted for via a constructed knowledge spillover index, RER depreciation is associated with significant upgrading, particularly in high-tech sectors. Heterogeneity analysis shows stronger effects in South–North value-added trade flows. All results remain robust to alternative specifications. Policy implications point to the need for a balanced approach: while exchange rate flexibility can enhance GVC participation, sustained upgrading requires complementary structural reforms that expand access to knowledge-intensive imports, strengthen innovation and skills, and redirect policy support toward high-productivity, export-oriented sectors.
Authors
Mariz Abdou
Ph.D. Candidate in Economics, Temporary Lecturer and...