Global Value Chains and Digitalization under Industry 4.0: The Hansen Threshold Regression Model in the Case of Africa

Abstract

The COVID-19 pandemic has raised concerns about the vulnerabilities of global value chains (GVCs), leading to discussions on how to enhance their resilience, security, and sustainability through adjustments to Industry 4.0 roadmaps. While some argue that digitization under Industry 4.0 could be a potential solution to make GVCs more resilient, others suggest that it could potentially reverse the trend toward GVCs and favor near-shoring or reshoring. However, empirical research on the impact of digital technologies on GVCs proliferation is lacking. This study addresses this gap by using a panel data set covering 27 African countries from 2005 to 2018 to examine how digitalization under Industry 4.0 affects the participation of African countries in GVCs. The findings reveal that digital infrastructure and skills positively and significantly impact GVCs participation. However, based on the Hansen threshold model, we find that when digital skills are below a certain threshold, digital infrastructure negatively affects both forward and backward linkages to GVCs. Conversely, when digital skills are above the threshold, digital infrastructure has a positive impact only on backward linkages. Nonetheless, digital skills consistently and significantly impact the participation of African countries in GVCs, irrespective of the level of digital infrastructure. As a conclusion, this study highlights the importance of digital infrastructure and skills in shaping the participation of African countries in GVCs, and underscores the need for further research in this area.