Foreign direct investment and participation of developing countries in global value chains: lessons from the last decade

Abstract

This study investigates how foreign direct investment (FDI) affects the participation of developing countries in global value chains (GVCs). This inquiry is crucial as FDI is seen, at least theoretically, as a means of expediting developing countries' participation in GVCs in some ways. It provides empirical evidence of this nexus between FDI and GVC using a dynamic panel data model including 43 developing countries (2010-2019). Our results show, among other things, that FDI has a significantly positive effect on the participation of developing countries in GVCs. This is found to be the case regardless of whether the FDI is in the primary, secondary or tertiary sector. However, to benefit fully requires policymakers to strengthen the absorptive capacity of the local labour force (productivity and education level).

Trade Policy and African Participation in Global Value Chains: Does Trade Facilitation Matter?

“…This shows that the applied tariffs hinder the participation of SSA countries in GVCs. This result is in line with those obtained in the literature according to which, low tariffs favor integration in GVCs (Slany, 2019;Del Prete et al, 2018;Okah Efogo et al, 2021). This result is confirmed by that of trade openness which increases the participation of SSA countries in the GVCs as it is noted that this variable has a positive and statistically significant coefficient at 1% level in all regressions.…”

“…FDI becomes positive when it comes to total participation (see Appendix 4), and positive and significant as a determinant for forward participation (see colon 1 Appendix 3). The negative effect of government effectiveness which capture governance is in line with the finding of some authors in the literature (Okah Efogo et al, 2021).…”

“…• Human capital: The literature suggests that adequate human capital promotes technology and knowledge transfer and the ability to process intermediate products (Okah Efogo et al, 2021). Moreover, a high human capital index is an attractive factor for FDI, which induces multinationals to include local firms in their production chain, leading to greater participation in MVCs.…”

Joint foreign ownership and global value chains effects on productivity: a comparison of firms from Poland and Germany

“…In Europe, the foreign value added (FVA) share in gross exports almost doubled between 1995 and 2018 (Figure 1). This tendency reinforced linkages between foreign companies and host economies, creating a complex trade-GVC-investment nexus (Adarov and Stehrer, 2021;Okah Efogo et al, 2022;Qiang et al, 2021). FDI is the primary form of global expansion for multinational companies (MNCs), which fuels trade and GVCs (World Bank, 2020).…”

Effet global du genre dans le développement des chaînes de valeur mondiales dans le contexte africain

“…Elles sont par conséquent frappées de façon disproportionnée par toute modification des disponibilités en ressources naturelles, mais elles sont aussi idéalement placées pour servir d'agents de changement dans la gestion des ressources naturelles (Fonds des Nations Unies pour l'Alimentation et l'Agriculture, 2017). La littérature empirique sur les déterminants de la participation des pays en développement et notamment africains dans les CVM est récente de même que celle mettant en lumière les effets sociaux économiques et environnementaux (Okah Efogo et al, 2022; Wonyra et al, 2021).…”