The emergence of global value chains (GVCs), whereby goods originally produced by firms within one country are now fragmented and distributed across global networks of production, constitutes one of the prominent aspects of the current globalisation wave. A growing literature in international economics argues that firms’ integration into GVCs stimulates trade-induced productivity growth through an array of channels, including through the reallocation of resources to their most productive use. Whilst there is extensive empirical evidence supporting this, studies are yet to compare these unambiguous productivity gains to the welfare gains or losses generated by the possible rise in unemployment and job transitions that GVCs may induce in the process of factor reallocation. This project quantifies the effect of firms’ integration into GVCs on job reallocation, paying particular attention to job creation and destruction.
To address this objective, the project relies on the South African Revenue Service and National Treasury (SARS-NT) panel firm-level data containing a representative sample of firms in South Africa. The research team follows recent developments in the literature, particularly, drawing on Hummels (2001) to construct a firm-level GVC indicator and Haltiwanger et al. (2014) to measure job creation and destruction. Panel data estimation strategies are applied to the data and, to address potential endogeneity issues, the researchers adopt two different estimation strategies. They firstly apply an instrumental variable approach to tackle issues of simultaneity and omitted variable bias before using propensity score matching to deal with issues surrounding selection.
The need to address the research question in the context of a developing country, in Africa, cannot be overemphasised. Despite years of industrial policy, industrialisation remains elusive in many African countries. In recent years, GVCs are argued to provide an easier route to industrialisation and structural transformation in Africa. Amid hopeful expectations, it is also argued that the technologies used in GVCs could be labour-saving, thus integration into GVCs could result in jobless growth. This project represents one of the first attempts to analyse the job creation and job destruction effects of GVC integration. Results from the analysis promise to provide evidence-based policy recommendations on how countries in Africa could leverage GVC integration to grow jobs and kickstart their industrialisation agenda.