Global value chains, labor productivity, and inclusive growth in Africa: empirical evidence from heterogeneous panel methods

Abstract

This paper analyzes the dynamic impact of global value chains (GVCs) on inclusive growth in Africa. In this regard, we use both a panel autoregressive distributed lags (ARDL) model and a cross-section augmented ARDL approach for a sample of thirty-five (35) African countries. The analysis used data from 1991 to 2018. Prior to the estimation of the parameters of the models, a set of tests are implemented namely: slope heterogeneity and cross-sectional dependence tests, as well as panel unit root test that permits cross-sectional dependence and slope heterogeneity. The study focuses on labor productivity as an important measure of inclusiveness and shows that the participation of countries at different stages of GVCs affect labor productivity and thus contributes to the achievement of inclusive growth. However, labor productivity gains from GVCs are not automatic and are observed in a more significant manner in the long run. While distinguishing between upstream participation and downstream participation, the paper found that in the long run, downstream participation (backward linkages) and upstream participation (forward linkages) equally impact labor productivity. In the short run, upstream participation has a positive and significant effect on labor productivity, while downstream participation does not significantly affect labor productivity. In light of our findings, African countries could be better integrated into GVCs and have enough room to achieve higher labour productivity through their participation in GVCs.