A Macro and Micro Analysis of Value Chain Trade in Africa

Abstract

Africa's participation in global value chains (GVCs) is not well documented compared to the developed world. Clearly understanding GVC participation levels is critical to enable evidence-based policy. This paper assesses Africa's GVC participation from both macro and micro perspectives using three sources of data, and empirically estimating determinants of GVC participation across the data. The analysis relies on databases based on global input-output tables, customs-level data, and survey data from which measures of GVCs are constructed. We find that aggregate GVC data masks disparities, as Africa's proportion of firms that participate in GVCs is comparable to other regions, but the level of Africa's GVC trade is much lower. A common theme in the multi country empirical results across two sets of data is the positive relationship between political stability and backward GVC participation of African countries. Comparatively, improvement in political stability and proximity to major regional hubs are more relevant for Africa than other regions. 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 global values chains. The inconsistencies in the data, however, suggest the need to consider establishing protocols and database that help understand Africa's GVC participation more coherently to enable policy makers to make informed decisions.