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This paper focuses on the global integration of economic zones for the movement of knowledge and technology. Using the case of China’s Economic and Trade Cooperation Zone in Egypt, it examines the dynamics of coordinating global value chain activity in a foreign-operated industrial cluster highlighting two main determinants of achieving technological progress, industrial planning and institutional dynamics.  The key question asked is whether a framework for the operation of economic zones that is controlled by lead economies can succeed in enhancing industrial competitiveness of domestic enterprises.  As evidenced by this case study, the organisation of global production, including decisions relating to the choice of location, industry focus, vertical cooperation and shifts in value chain activity, is not determined endogenously within the chain but by the policy imperatives of the lead economy.  The opportunity for domestic enterprises to participate in global production are strategically circumscribed by nodal firms that play a role in organising global production.  The argument put forward is that accelerating GVC participation, fails to ensure the vertical move upward of domestic enterprises, and may counter the development of indigenous capabilities in the host economy.

* Support from the European Union through the FEMISE project on “Support to Economic Research, Studies and Dia­logues of the Euro-Mediterranean Partnership” gratefully acknowledged. Any views expressed in this report are the sole responsibility of the authors.