Services Liberalization and Global Value Chains Participation: Evidence from Egypt

Abstract

With the growing 'servicification' of the manufacturing sector, efficient and competitive services are key to developing countries' engagement in today's production structure relying on global value chains. The objective of this paper is, therefore, to assess the impact of restrictive services trade policy on manufacturing firms' participation in global value chains by combining data from the Services Trade Restrictiveness Index from Jafari and Tarr (2017) with Egyptian firm-level data from the World Bank Enterprise Surveys. The paper uses a novel multi-tiered approach introduced by Dovis and Zaki (2020) to measure different degrees of firms' participation in global value chains that extend beyond simple two-way trade. Results from the empirical exercise suggest that services restrictions reduce the likelihood of manufacturing firms' participation in global value chains. This impact is more pronounced for larger firms and for more complex forms of global value chain integration involving trade, international certification, and foreign ownership.