The impact of China's trade and FDI on Africa's GVC participation and economic upgrading

Abstract

PurposeThis study examines the impact of China's trade and foreign direct investment (FDI) on Africa's global value chain (GVC) participation and economic upgrading.Design/methodology/approachThe study covered 48 African countries, cutting across the western, eastern, central, southern and northern subregions to cover the heterogeneity of the continent. The study adopted feasible generalized least squares panel VAR-Granger causality Wald test and system generalized methods of moments techniques for estimation.FindingsOverall, China's FDI to Africa and US-Africa trade have a linear relationship with Africa's GVC involvement and economic upgrading. The findings suggest that although China-Africa trade has a positive impact on GVC engagement and upgrading, the marginal effect decreases in the face of US-Africa and EU-Africa trade.Originality/valueThis study provides new evidence on the impact of China's FDI and trade on African economies' GVC participation and economic upgrading. To the best of the authors’ knowledge, this is the first study to empirically explore the effects of China's FDI and trade on Africa's GVC integration and economic upgrading as well as from the perspectives of backward and forward GVC participation. Furthermore, the study empirically examines whether the effects of Africa's economic cooperation with China relative to its GVC engagement differ from those of Europe (EU) and the US via a comparative regression.