Value Chain Development, Trade, and Economic Transformation in Africa (GVC II)

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Approximating the First order Effects of AfCFTA Tariff Reductions on CO2 Emissions
(AERC, 2024) De Melo, Jaime; Solleder, Jean-Marc
This paper explores the likely effects of tariff reductions under the African Continental Free Trade Area (AfCFTA) on carbon dioxide (CO2) emissions. It proceeds in three steps, with all estimates relying on the most recent, i.e. 2015, disaggregated data on emissions intensities. First, we show that, across African countries, CO2 intensities are higher in the more protected sectors, so that, at unchanged emission intensities, tariff elimination on intra-African trade during AfCFTA should favour CO2 intensive activities. Second, for the EAC and ECOWAS, the two RECs for which AfCFTA-compliant tariff reduction schedules are available, we estimate that removing tariffs on goods in the tariff elimination list would reduce progressively the carbon intensity of trade for these goods. The estimates suggest that an increase of 1% of the emission intensity is associated with a decrease of about 0.09% of the MFN tariff. Third, to see which effect will dominate, we estimate partial equilibrium effects of ‘full’ tariff elimination under AfCFTA and find that intra-African trade would increase by 32% and emissions embedded in trade by 24%, implying a CO2 elasticity to trade of 0.74, thus, reducing the CO2 emission intensity of Intra-African trade.
Assessing the Drivers of Firm Participation in Global Value Chains: Empirical Evidence from Tanzania
(AERC, 2024-11-27) Kweka, Josaphat; Sooi, Fadhili
Using firm-level data from the recently available Tanzania Enterprise Survey (TES) 2022, this paper provides empirical analysis of drivers of firm participation in global value chains (GVCs), and implication of such participation on firm performance in Tanzania. The findings show that, firm size, awareness of external markets, investment in Research and Development (RandD), and engagement in innovation and technology upgrading are significant drivers of firm participation in GVCs for Tanzania. The paper confirms the widely acclaimed conclusions in the literature that firm participation in GVCs is positively and significantly associated with higher firm performance. However, despite the positive role of GVC, the extent of firm participation appears low for Tanzania, mainly on account of low level of capacity of often small and informal firms. The findings underscore the need to increase government's efforts to improve environment and incentive for small firms to formalize and grow. The results are also supportive of the need for policy to promote regional integration, investment in RandD, innovation, and technology upgrading.
Assessing the Role of Innovation in Cameroonian Firms’ Participation in Global Value Chains
(AERC, 2024-11-27) Malah-Kuete, Flora Yselle; Avom, Desire
This study aims to contribute to the empirical literature on the drivers of Cameroonian firms’ participation in Global Value Chains (GVCs) by examining the role of innovation. We use logistic regressions and matching techniques to analyse pooled cross-sectional data from the 2008 and 2016 Cameroonian Enterprise Censuses. Our findings indicate that investments in innovation, particularly in machinery and equipment, as well as software and technology, significantly enhance the probability of Cameroonian firms participating in GVCs through subsidiary ties with foreign firms. Building upon these results, we discuss the implications of promoting innovation and making strategic investments in critical sectors of the economy to facilitate greater engagement of local firms in GVCs.
Factors that Influence Global Value Chains: Evidence from the Manufacturing Sector in Kenya
(AERC, 2024-11-27) Kinuthia, Bethuel Kinyanjui
This study investigates the determinants of GVCs participation among manufacturing firms in Kenya. Using the propensity matching method and firm-level cross-sectional data from the World Bank Enterprise Survey (WBES) for the period 2007‒2018, the analysis identifies key determinants across the entire manufacturing sector. These determinants are labour productivity, foreign ownership, firm size, website presence, generator use, and transport costs. Additional factors depend on the specific GVC definition applied. The study also reveals that smaller and female owned firms are more susceptible to business environment factors such as security, corruption, and competition with the informal sector compared to larger and male owned counterparts. Furthermore, the study examines factors that influence GVCs participation in the food and chemical sectors, highlighting sector-specific factors which can result in tailored policy recommendations.
Firm Volatility in an Era of Global Value Chain: The Role of Product Quality
(AERC, 2025) Gideon Ndubuisi; Solomon Owusu
It is widely recognized that trade and volatility are intricately linked, which has led to a large literature that examines the nature of such relationship. Despite more than 50% of global trade now taking place through the global value chain (GVC), this literature has proceeded without considering the role of GVC. This paper fills this gap by examining the effect of GVC participation on firm job growth volatility and the role of product quality in shaping this relationship. We combine custom transaction-level data and data on firm characteristics that are both provided by the South African Revenue Services and National Treasury (SARS-NT) on the universe of formal manufacturing firms in South Africa for the period 2010-2017. We find robust evidence suggesting that embeddedness in GVC reduces firm volatility, especially for firms that produce and export higher-quality products in the value chain. Therefore, our results provide evidence that GVC offers firms the opportunity to build resilience in terms of reducing volatility, which is paramount to building production capacity, stable export earnings, and higher value capture in the value chain.
Global Value Chain Participation of Firms in West Africa: Empirical Insights from Ghana and Nigeria
(AERC, 2024-11-27) Osabuohien, Evans S.; Karakara, Alhassan Abdul-Wakeel; Edafe, Oluwatosin D.
Global value chains (GVC) have become an important developmental issue. However, empirical studies on the peculiar nature of the GVC participation of firms are sparse, especially in West Africa. Thus, this study empirically examines the factors that constitute the major drivers of firm GVC participation and the institutional obstacles to firm GVC participation. The study discusses how such factors could be surmounted. We use the logit model as the empirical strategy and the World Bank's Enterprise Survey (ES) database for two biggest West African countries: Ghana and Nigeria. The findings show that firms in West Africa face constraints that militate against their participation in GVC. Also, we find crucial factors that can influence firms’ participation in GVC, which differ relatively between Ghana and Nigeria. In essence, medium and large-scale firms have higher likelihood to participate in GVC than small-scale firms. Similarly, the legal status of the firm helps in enhancing the firms’ participation in GVC, as firms that are shareholding or partnership firms are more likely to participate in GVC than sole proprietorship firms. Also, firm location serves as an advantage to the firm GVC participation, as firms in cities with a human population of over one million are more likely to be engaged in GVC. The finding of the study is relevant to industry players and firms, particularly on the mode of participation in GVC and in helping policy makers in creating a favourable policy ambience for GVC participation of firms, which could enhance corporate relations among domestic firms and international players to spur firms’ productivity and participation in GVC.
Greening Trade through Global Value Chains in Africa
(AERC, 2025) Angella Faith Montfaucon; Socrates Kraido Majune
The global response to climate change necessitates that less developed economies adapt and maximize new potential export opportunities in global trade, and access green technology through imports for their own green transformation. Using detailed firm-level data for Malawi and Kenya (2013-2020), this paper tests whether firms in global value chains (GVCs) participate more in green trade relative to non GVC firms. Second, we test whether importing green goods leads to exporting green goods. Green goods are heterogeneous and are divided into 19 different categories, depending on their usage in climate mitigation and adaptation. We find that imports of green goods far exceed exports, signaling that trade currently serves more as an access to green technologies with limited exports of these products. Second, being a GVC firm is associated with a higher probability of importing than exporting green goods. Also, the increase in trade value after a firm becomes a GVC is much larger for imports than exports. Third, higher imports of green goods are associated with higher exports of green goods, especially for GVC firms. Therefore, GVCs can play a key role in Africa’s green transition and trade competitiveness. As such, it is imperative for African governments to attract foreign direct investment in the green sector, potentially targeting sectors where they can gradually acquire comparative advantage and start exporting green goods in the future.
GVCPs in Zimbabwe's Critical Sectors in the Face of Environmental Pollution and Climate Change: The Case of Agriculture and Mining Sectors
(AERC, 2024-11-27) Dube, Benhilda; Nyika, Teresa; Pasara, Michael Takudzwa
This study analyses global value chain participation (GVCP) in Zimbabwe's two critical sectors of agriculture and mining in the face of environmental pollution and climate change. Mining and agriculture are Zimbabwe's largest export sectors by value, and the later plays a critical role towards food security. However, the two sectors have potential conflicting interests on land as well as environmental pollution. The study employs the Auto Regressive Distributive Lag (ARDL) and ARDL-EC (error correction), to analyse short-run and long-run relationships. The results indicate that, in the short run, lagged GVCP agriculture exerts positive pressure on GVCPagriculture by 0.66% while, climate change (droughts) and pollution (CO2 emissions) exert negative pressure on GVCP agriculture at 5% and 1% level of significance, respectively. However, GVCP mining and population growth did not significantly reduce GVCP agriculture. Moreover, GVCP mining and population growth increase transport CO2 emissions both in the short run and long run at 5% and 1% level, respectively. Thus, mining is not environmentally neutral. In the long run, interaction between population growth and mining rents reduce transport CO2 levels at 5% level. The study recommends government to raise mineral taxes for those participating in mining and use the revenues to subsidise the agriculture sector. In the agriculture sector, government can remove import tax on agriculture equipment such irrigation equipment as well as the removal of other restrictions including opening up grain price to market forces to increase quality and level of participation. The government should continue enacting and enforcing policies which minimize pollution, such as limits on carbon emissions.
Job Impacts of Global Value Chains: Firm-Level Evidence from Cameroon
(AERC, 2024-11-27) Njikam, Ousmanou
Today, almost 50% of the world trade involves Global Value Chains (GVCs). New technologies entering GVCs participating firms’ exports are skill-biased and understanding the job implications in African countries endowed with unskilled workers is vital. Using firm-level panel data in Cameroon, this paper analyses whether GVCs’ integration and position have contributed to job generation and explores whether firm characteristics such as capital and skill intensity of production influence the GVCs-job relationship. I estimate dynamic labour demand functions for skilled and unskilled workers including sector-level GVCs and their interactions with firm characteristics. GVCs integration and position have no significant impact on any type of job. However, examination of moderator effects yields important results: while forward GVCs and GVCs position hurt both (un)skilled workers in less capital- and skill-intensive firms, backward GVCs have a significantly positive impact on (un)skilled jobs in more capital- and skill-intensive firms, and GVCs participation enhances only unskilled jobs in more capital-intensive firms. The findings are robust to the disaggregation of sectors into manufacturing vs services, high- vs low-GVCs participation, and upstream vs downstream industries and highlight the role of human capital in influencing the GVCs-job nexus in African economies.
Potential for Africa Continental Free Trade Area to Increase East African Community Exports to Africa
(AERC, 2024) Zgovu, Evious; Morrissey, Oliver
This paper provides estimates of the potential for East African Community (EAC) member countries to increase exports to the rest of Africa as the other countries reduce tariffs under the African Continental Free Trade Area (AfCFTA), using a simple approach to identify the markets (countries) and products most likely to benefit considering only growth of existing imports from the EAC. The assumption is that EAC member countries have evident export capacity in such products and markets, and that these products are unlikely to be excluded from liberalization by importing countries. The results suggest that the EAC could expand exports overall by 10-15%, largely concentrated in relatively close countries, and agriculture and resource-based products, but with basic manufactures. Relatively distant markets in North and West Africa offer reasonable potential to EAC countries, except Rwanda (concentrated on the Democratic Republic of Congo - DRC) and Tanzania (concentrated on Southern Africa). The EAC can anticipate moderate gains from AfCFTA and, by identifying the markets and products most likely to be affected, the study provides a guide to policy makers in EAC countries on sectors to target in supporting exports, including products that could target new distant markets (that include some basic manufactures). Textiles and apparel offer the best potential to engage in regional value chains.
Trade in Business Services’ Booms: The Case of Ghana
(AERC, 2025) Andrea Ariu
This paper analyzes the growth of trade in business services with a particular focus on Ghana. This country has experienced the fastest and most important increase in business services in recent years. This spectacular growth has led Ghana to export as much as a developed country and improved its economy. The main factor underneath this growth is the improved capacity to export business services, which is likely to be accounted for by an impressive inflow of foreign companies attracted by the economic and political conditions, together with the establishment of the Secretariat of the African Continental Free Trade Area in the country. These results are not specific to Ghana. In other African and non-African countries, supply-side determinants are the main propellant of growth in the export of business services.

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