Integration into regional or global value chains and economic upgrading prospects: an analysis of the East African Community (EAC) bloc

Abstract

AbstractThe aim of the study was to assess the integration into regional or global value chains and economic upgrading prospects in the East African Community (EAC) bloc. We conducted a comparative analysis of participation in global value chain (GVC) among EAC member states and assessed the determinants of economic upgrading in the region using UNCTAD-Eora GVC Panel data from 2005 to 2018. The results show that Kenya, Tanzania and Uganda are relatively better integrated through two channels of GVC participation, namely foreign value added (FVA) and domestic value added. However, for indirect-value added channel, Kenya had the highest score, the rest member states had relatively lower mean scores. The overall results show that EAC’s participation in GVC still resides in upstream low- and middle-value-added production activities, which limits its competitiveness compared to other regions. The empirical results show the positive and significant effect of domestic credit, foreign direct investment, quality of institutions and FVA on economic upgrading. However, a positive but insignificant association with economic upgrading was observed for human capital and GDP per capita. Infrastructure quality was negatively and significantly associated with economic upgrading. These results suggest that improving infrastructure connectivity and further strengthening institutional governance would reduce trade costs and promote greater investments, product and service diversification, leading to deeper economic upgrading in the region. At the policy level, the adoption of effective national and regional industrial policies would promote innovation and human capital development, attract foreign direct investment and help address market and coordination deficiencies in the region.