An analysis of value chain trade in Africa

Abstract

AbstractAfrica's participation in global value chains (GVCs) is not well documented compared with the developed world. Clearly understanding GVC participation levels is critical to enable evidence‐based policy. This paper uses two sources of data to assess Africa's GVC participation and empirically estimates determinants of GVC participation across the data sets. The analysis relies on databases based on customs‐level data (firm and country) and firm survey data from which measures of GVCs are constructed. We find that aggregate GVC data mask disparities, as Africa's proportion of firms participating in GVCs is comparable to other regions, but Africa's GVC trade is much lower. A common theme in the multi‐country empirical results is the positive relationship between political stability and GVC participation of African countries. For single‐country analyses, the consistent result is that FDI is positively associated with backward GVC participation, both at the firm level and country level of analysis. This highlights how much institutions and the need to attract FDI are relevant in promoting Africa's future engagements in GVCs. The consistency in GVC participation rates across the two data sets at the country level indicates their suitability in GVC studies in Africa and expanding their country coverage can enable policymakers to make informed decisions.