Global Value Chain Project

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African Firms in Global Value Chains: What Can We Learn from Firm-Level Data in Cameroon and Côte d'Ivoire?
(African Economic Research Consortium, 2022-07) Coulibaly, Romaric; Moreno, Heddie; Akiko, Suwa-Eisenmann; Traore, Nouhoum
This scoping paper exploits information from a unique data set constructed by merging firm census and custom data sets from Cameroon and Côte d'Ivoire to analyse the characteristics of firms that participate in global value chains (GVCs) in sub-Saharan Africa. These “GVC firms” are defined as firms that both export and import, with positive production and labour. The paper provides a detailed review of the state of firms' participation in GVCs in Africa and its consequences on trade, employment, and growth. The evidence in Cameroon and Côte d'Ivoire suggests that, in line with literature on firm heterogeneity and trade, firms engaged in GVCs are larger, more productive, and live longer than one-way-traders or domestic firms. Surprisingly, however, there are more GVC firms than pure exporters, a sign of the challenges faced by firms in those countries if they want to sell abroad. The probability of moving into a GVC is higher for exporters than for importers, showing that exporting is a stepping stone for firms to join a GVC.
Deep Regional Trade Agreement as a Driver for Global Value Chains in Africa: The Case of ECOWAS Region
(2022-07) Balaki, Afi; Mamba, Essotanam
The paper investigates the effects of deep regional trade agreement (RTA) on global value chains (GVCs) for 11 countries from the Economic Community of West African States (ECOWAS) region over the period 1996‒2018 by applying the fractional logit regression technique. GVCs are calculated as shares of foreign value-added (FVA), domestic value-added (DVA), and DVA exports (DVX) in gross exports. Unlike previous works that often use the binary variable, the deepening of RTA is measured by a new continuous indicator, the ratio between the cumulative number of protocols and conventions ratified and the cumulative number of protocols and conventions signed. Second, the paper analyses control of corruption as a channel through which deep RTA influences GVCs. The findings reveal that, deepening RTA significantly increases FVA while it reduces DVA, but only at the 10% level and the findings become insignificant with the inclusion of control variables. Furthermore, our findings indicate the existence of a complementarity relationship between deep RTA and control of corruption in DVX model. ECOWAS governments should pursue the ratification of protocols and conventions and the fight against corruption to take advantage of deep integration in terms of the participation in GVCs.
Digital Connectedness and Exports Upgrading: Is Sub Saharan Africa Catching Up?
(African Economic Research Consortium, 2022-07) Cariolle, Joël; Piedade, Camille da
In this paper, we highlight a new dimension of the submarine cable infrastructure network, termed ‘digital connectedness’, reflecting a country's digital proximity to main world markets, and assess its impact on export upgrading. Adopting an instrumental variables approach conducted in a sample of 60 developing countries― including 23 sub-Saharan African countries―over the period 1995‒2017, we find that digital connectedness positively and significantly contributes to the export basket complexity, but also points out spatial heterogeneity within our sample. In fact, estimations stress that, compared to the Rest of the World, a 10pp increase in the share of world GDP directly cabled to SSA countries leads to a supplementary increase ranging from 4.6 index points to 5.3 index points in the export complexity index. Moreover, whereas the positive effect of digital connectedness falloffs with distance from global markets everywhere else, in sub-Saharan Africa, an increased benefit is recorded. Last but not least, consistent with the literature improved digital connectedness also materializes into greater exports of differentiated goods and greater participation in the global value chain. Overall, our analysis gives credit to the belief that improved access to information and knowledge, through greater digital connectedness, spurs structural change and export basket upgrading in SSA at a higher pace than in any other developing areas.
Global Value Chain Participation and Innovation: Firm-Level Evidence from Africa
(2022-08) Avenyo, Elvis K.; Mensah, Emmanuel B.; Ndubuisi, Gideon; Sakyi, Daniel
Firm-level innovation in developing countries is mostly incremental and depends on non-R&D activities. Integration into global production networks is one such activity that could help firms in developing countries to innovate. This is particularly the case since new technologies and foreign knowledge diffuse through inter-firm linkages. This paper examines the relationship between Global Value Chain (GVC) participation and firm innovative capabilities in Africa, utilizing data from the World Bank’s Enterprise Survey (WBES). Addressing endogeneity arising from reverse causality, our results show that firms in Africa that engage in GVC activities have a higher likelihood of introducing innovative products onto markets. The results are robust to alternative definition of GVC and innovation variables and identification strategy. Our findings shed light on the mechanisms that make innovation possible within GVC firms, and the implications it has for trade, regional integration, and innovation in Africa.
Global Value Chains Participation and Environmental Pollution in Developing Countries: Does Digitalization Matter?
(African Economic Research Consortium, 2022-07) Ali, Essossinam; Bataka, Hodabalo; Awade, Nadege Essossolim
This study analyses the effect of Global Value Chains participation (GVCPs) on environmental pollution. It also assesses whether the use of digitalization can mitigate the effect of GVCPs on environmental pollution. We employed the second-generation panel analysis on data from 112 developing countries over the period from 1990 to 2018. Using Driscoll and Kraay estimation technique, we find that the GVCPs increases environmental pollution while digitalization reduces CO2 emissions in developing countries. However, the results show that the U-inverted hypothesis between GVCPs and environmental pollution is not verified in the study areas. Furthermore, the study shows that, unlike renewable energy consumption, the FDI inflows, industrial value-added, and electricity consumption are positively correlated to environmental pollution in developing countries. We find that, reducing CO2 emissions from digitalization is more pronounced in other developing countries than in sub-Saharan Africa. Moreover, the findings show that digitalization can be used as an effective channel in reducing the effects of GVCPs on environmental pollution and helping developing countries to go green. These findings have important policy implications in exploring the GVCPs development dynamics in terms of upgrading opportunities in using digital technologies to reduce environmental pollution and promote green technologies' adoption for structural transformation of developing countries.
Integration of African Countries in Regional and Global Value Chains: Static and Dynamic Patterns
(African Economic Research Consortium, 2022-07) Mensah, Emmanuel B.; Biesebroeck, Johannes Van
We study the geographic concentration of trade flows of African countries using information on the global input-output structure from the Eora database. Most countries show a similar concentration between close-by vs. long-distance trade in their foreign input sourcing as in their export sales. However, changes over the last two decades indicate that many countries increasingly focus their long-distance trade on only one of these two dimensions. This trend is most pronounced in manufacturing industries with stronger global value chains. In line with the learning-by-exporting hypothesis, export success on distant markets is a leading predictor (Granger causes) of regional export success. Only in light manufacturing do we find some evidence of a reverse pattern, i.e., regional exports preceding global exports.
The Landscape of CO2 Emissions Across Africa: A Comparative Perspective
(2022-07) Melo, Jaime de; Solleder, Jean-Marc
Expansion of Global Value Chains (GVCs) is a mixed blessing for the environment. Effects of growth and emissions from transport associated with international trade have negative effects; but greater flows of knowledge and associated spillovers, and adoption of environmentally innovative products have positive effects. This paper gives evidence on carbon dioxide (CO2) emissions for 51 African countries and 132 other countries for 163 products over the period 1995‒2015. The resulting landscape is summarized in six patterns. Patterns identified for the Africa region differ from those identified for other regions, but are closely related to a synthetic aggregate comparator constructed on the basis of three characteristics (per capita income, share of manufacturing in GDP, and distance to trading partners).
A Macro and Micro Analysis of Value Chain Trade in Africa
(African Economic Research Consortium, 2022-07) Montfaucon, Angella Faith; Nigatu, Natnael Simachew; Majune, Socrates
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.
Regional Integration and Services in African Value Chains: Retrospect and Prospect
(African Economic Research Consortium, 2022-07) Shepherd, Ben
This paper takes a first step towards understanding the quantitative evidence on the role of commercial services in African value chains. The available data are largely based on assumptions and modelled estimates, but can nonetheless provide some useful information at an aggregate level. In general, services play an important role in the African regional economy, including through their embodiment in the exports of other sectors through input-output relationships. However, services value chains in the region are mostly composed of domestic value-added, and to a lesser extent inputs sourced from global suppliers. There is very little intra-regional sourcing of commercial services inputs. Simulations using a new quantitative trade model show that intra-regional sourcing could be increased through a derived demand effect following goods market liberalization. In the stylized cases examined, increased use of regional services inputs is not at the expense of globally competitive suppliers, although is some variation at a sub-regional level. As such, it will be important to give a more prominent role to services in discussions of regional integration going forward.
Services Trade in Africa: Structure and Growth
(2022-07) Ariu, Andrea; Ogliari, Laura
This paper shows that trade in services is still at its infancy in Africa; its growth started later than for other developed and developing economies and, so far, it involves mostly low-skilled services. Disentangling the different sources of trade growth, we find that demand and supply determinants have been relatively stable during the period 2002‒2016, while service diversification and trade policy are the main propellants. In particular, trade in goods liberalization increased service trade as well due to the complementarities between the two. In terms of geographical and industrial involvement, services produced in Africa are able to reach farther destinations than goods, but they are concentrated on industries close to final demand, thus missing high-skilled services which are more upstream, but represent higher value-added inputs. Therefore, there is still plenty of scope to consider trade in services as a potential source of growth and development for African countries.
Surges in Participation in Global Value Chains: Drivers and Macroeconomic Impacts in Sub-Saharan Africa
(African Economic Research Consortium, 2022-07) Ebeke, Christian
This paper proposes a cross-country examination of the drivers and impacts of episodes of surges in countries' participation in international value chains based on event-analysis previously used in the empirical literature in studies on export surges or GDP growth accelerations. Using a large sample of developing countries over the period 1990‒2018, and relying on the EORA database, the paper offers three main results. First, the “surges” are not common, with only 11 episodes recorded in sub Saharan Africa over the past three decades. Second, strong FDI inflows and governance quality precede the occurrence of these “surges”, while protracted real exchange rate under-valuations appear to nurture these surges. Third, once they occur, these “surges” are transformative: they are associated with higher real per capita GDP growth, rapid industrialization, stronger diversification and sophistication of exports, and faster poverty reduction.
Trade and Value Chain Participation: Domestic Firms and FDI Spillovers in Africa
(2022-07) Hoekman, Bernard; Sanfilippo, Marco
Data on the location of foreign direct investment (FDI) projects within and across African nations are combined with firm-level survey data and information on sectoral input-output relationships to assess what types of FDI are more likely to influence participation in global value chains (GVCs), and to investigate the relationship between FDI and the performance of proximate domestic firms. Firm-level analysis finds evidence of vertical spillovers from exposure to FDI, mainly in the manufacturing sector: domestic firms located near FDI projects that offer potential supply or demand linkages are more likely to engage in trade through imports or exports. Proximity to FDI projects in the same sector (horizontal linkage) is less likely to affect trade or GVC performance of domestic firms. Both vertical and horizontal FDI linkages are associated with higher labour productivity and other dimensions of performance.

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