Foreign direct investment (FDI) can promote both backward and forward participation in global value chains (GVCs). Extant literature has largely studied this relationship using aggregate cross-country data. We examine the effects of both inward and outward African greenfield investment on host and source countries’ participation in GVCs over 2003-22 in a gravity framework. Inward greenfield investment in manufacturing sectors is found to be positively associated with forward participation of African host countries with the result driven by extra-African investment in North Africa. Greenfield investment by African investors outside the continent is also found to be positively associated with GVC-participation and driven by Sub-Saharan African investment in services. The findings are robust to accounting for endogeneity in the investment-GVC relationship and to using alternative sources of investment data. These results confirm that FDI also has second order effects on productivity, growth and structural transformation via GVC-linkages, which is likely to further incentivize policy action towards dismantling investment barriers within the continent.
STEG Working Paper Series
• Research Theme 0: Data, Measurement, and Conceptual Framing,
Research Theme 1: Firms, Frictions and Spillovers, and Industrial Policy,
Research Theme 4: Trade and Spatial Frictions,
Cross-Cutting Issue 3: Inequality and Inclusion
Greenfield investment and value-chain integration: evidence from Africa
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