Deep Trade Agreements, Institutions and Global Value Chains: Evidence from Egypt

This paper investigates the nexus between deep trade agreements, institutional quality and global value chains (GVCs) in Egypt. In reality, the enforcement of deep trade agreements requires good institutions, in order to boost GVCs. Applying a Poisson Pseudo-Maximum Likelihood (PPML) estimator to control for heteroscedasticity and zero trade flows, we use bilateral and sectoral data on Foreign Value-Added (FVA) exported by Egypt from the Eora dataset and merge it with the Deep Trade Agreement Dataset (World Bank). The findings of the paper support the positive relationship between the depth of trade agreements and GVCs at the aggregated level. In addition, differences in the quality of institutions reduced this positive effect. However, the sectoral analysis revealed much heterogeneity across different sectors. Comparing the coefficients of trade agreements for different periods, one can conclude that GVC linkages in human capital and technology-intensive products have started to respond to deep trade agreements, pointing towards agreement depth being highly relevant in respect of export upgrading. From a policy perspective, this paper highlights the importance of deepening agreements if the participation of African countries in GVCs, including Egypt, is to be increased.