Trade and value chain participation: Domestic firms and FDI spillovers in Africa

Abstract

AbstractData on the location of foreign direct investment (FDI) projects within and across African nations are combined with firm‐level survey data and information on sectoral input–output relationships to assess what types of FDI are more likely to influence participation in global value chains (GVCs) and to investigate the relationship between FDI and the performance of proximate domestic firms. Firm‐level analysis finds evidence of vertical spillovers from exposure to FDI, mainly in the manufacturing sector: domestic firms located near FDI projects that offer potential supply or demand linkages are more likely to engage in trade through imports or exports. Proximity to FDI projects in the same sector (horizontal linkage) is less likely to affect trade or GVC performance of domestic firms. Both vertical and horizontal FDI linkages are associated with higher labour productivity and other dimensions of performance.