Exports and Labor Demand : Evidence from Egyptian Firm-Level Data

Unlike many countries, the Arab Republic of Egypt did not experience significant labor market improvements following trade liberalization. This paper investigates why increased Egyptian exports did not directly increase employment. To illustrate the relationship between firm-level exporting and employment, the paper presents a simplified general equilibrium model with two sectors: one able to export and one “reserve” sector. The paper tests the implications of this theory using firm-level data from the World Bank’s Enterprise Surveys in 2013, 2016, and 2020. The firm-level microanalysis demonstrates that although there is a positive employment response to export expansion, it does not occur at a large enough scale to be felt at the macro level. To seize the benefits of trade, Egypt requires deeper business environment reforms to incentivize large export, labor-intensive sector growth and integrate its economy into global value chains.