Africa as headwaiter at the dining table of global value chains: Do institutions matter for her participation?

Abstract

Global value chains (GVC) have propelled substantial expansion in international trade across the globe over the last two decades. Yet, the institution-GVC nexus in Africa suffers complete neglect in literature. Therefore, we evaluate the impact of different components of political and economic institutions on backward (BWDGVC), forward (FWDGVC), total GVC participation, and GVC position (upstreamness) in Africa. Using system-GMM with United Nations Conference on Trade and Development GVC database (UNCTAD-Eora MRIO) for 47 African countries over the period 2000-2018, the key findings show that the effects of the political and economic institutions on GVC participation are diverse. Specifically, property rights, government spending, monetary freedom, and tax burden negatively affect BWDGVC participation while government integrity, investment freedom, and financial freedom stimulate the BWDGVC. Also, all the components of institutional quality that propel BWDGVC, hinder FWDGVC participation and upstreamness, except investment freedom which promotes both BWDGVC and FWDGVC. Nonetheless, property rights, government integrity, monetary freedom, financial freedom, and tax burden engender total GVC participation, whereas government effectiveness, and investment freedom hinder the total GVC participation. Furthermore, good political institutions promote BWGVC and total GVC but reduce upstreamness. Thus, institutions are fundamental drivers of GVC participation in Africa.