Skip to main content
SpringerLink
Log in

Financial Development and African Participation in Global Value Chains

  • Chapter
  • First Online:
Financing Africa’s Development

Abstract

This paper investigates the contribution of financial development for African countries’ participation in global value chains (GVCs). It relies on a review of the theoretical and empirical literature that can shed light on the mechanisms whereby financial development affects value-added trade. A panel econometric analysis covering 36 African countries between 2000 and 2018 supplements the theoretical analysis. Data used for this empirical analysis comes from the WDI (2018), UNCTAD_EORA (The Eora Multi-Region Input-Output Database, 2018) and UNDP (2018) databases. The Financial Development Index is a multidimensional synthetic index constructed by the IMF (2018). Theoretical analysis shows that very little work has addressed this issue, although there is considerable evidence that financial development has a positive impact on the conditions for participation in and upgrading within a GVC. As for the empirical results, they reveal that financial development increases the participation of African countries in GVCs. However, some dimensions of financial development do not have a positive effect. Moreover, regional features are important in understanding the relationship between financial development and value-added trade. This research is therefore a useful tool for decision-making in promoting financial development for deeper African countries’ participation in GVCs.

Participating in GVCs is not a given […]. Trade costs and connectivity are important, but so are worker skills, infrastructure, and technological capacity, as well as the rule of law and macro and political stability.

(World Development Report 2020, Concept Note, January 11, 2019, p. 13).

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 119.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 159.00
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 159.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    C’est un département ministériel qui dirige les travaux du gouvernement britannique en vue de la réduction de l’extrême pauvreté (www.gov.uk/government/organisations/department-for-international-development.

References

  • Acemoglu, D., Aghion, P., & Zilibotti, F. (2006). Distance to frontier, selection, and economic growth. Journal of the European Economic Association, 4(1), 37–74.

    Article  Google Scholar 

  • AfDB, OCDE, & PNUD. (2017). Entrepreneuriat et Industrialisation. Perspectives Economiques en Afrique. Éditions OCDE, Paris.

    Google Scholar 

  • AfDB, OECD, & UNDP. (2014). Global value chains and Africa’s industrialization. African Economic Outlook. Paris: OECD Publishing.

    Google Scholar 

  • Alfaro, L., Kalemli‐Ozcan, S., & Sayek, S. (2009). FDI, productivity and financial development. World Economy, 32(1), 111–135.

    Google Scholar 

  • Allard, C., Kriljenko, J. C., Gonzalez-Garcia, J., Kitsios, E., Trevino, J., & Chen, W. (2016). Trade integration and global value chains in sub-Saharan Africa: In pursuit of the missing link. IMF Departmental Paper, (16/05).

    Google Scholar 

  • Aluko, O. A., & Ibrahim, M. (2019). On the macroeconomic determinants of financial institutions development in sub-Saharan Africa. International Review of Economics, 1–17.

    Google Scholar 

  • Alzaidy, G., Ahmad, M., & Lacheheb, Z. (2017). The impact of foreign-direct investment on economic growth in Malaysia: The role of financial development. International Journal of Economics and Financial Issues, 7(3), 382–388.

    Google Scholar 

  • Amador, J., & Cabral, S. (2016). Global value chains: A survey of drivers and measures. Journal of Economic Surveys, 30(2), 278–301.

    Article  Google Scholar 

  • Andrews, D., & Cingano, F. (2014). Public policy and resource allocation: evidence from firms in OECD countries. Economic Policy, 29(78), 253–296.

    Article  Google Scholar 

  • Arnold, J. M., & Flach, L. (2017). Who gains from better access to credit? Heterogeneous firm responses and the reallocation of resources. OECD Economics Department Working Papers.

    Google Scholar 

  • Arvis, J. F., Saslavsky, D., Ojala, L., Shepherd, B., Busch, C., Raj, A., & Naula, T. (2016). Connecting to compete 2016: Trade logistics in the global economy—The logistics performance index and its indicators. World Bank.

    Google Scholar 

  • Aslam, A., Novta, N., & Rodrigues-Bastos, F. (2017). Calculating trade in value added. International Monetary Fund.

    Google Scholar 

  • Bilir, L. K., Chor, D., & Manova, K. (2019). Host-country financial development and multinational activity. European Economic Review, 115, 192–220.

    Article  Google Scholar 

  • Boffa, M., Jansen, M., & Solleder, O. (2019). Do we need deeper trade agreements for GVCs or just a BIT? The World Economy, 42(6), 1713–1739.

    Article  Google Scholar 

  • Bokpin, G. A., Ackah, C., & Kunawotor, M. E. (2018). Financial access and firm productivity in sub-saharan Africa. Journal of African Business, 19(2), 210–226.

    Article  Google Scholar 

  • Borchert, I., Gootiiz, B., & Mattoo, A. (2012). Policy barriers to international trade in services: evidence from a new database. The World Bank.

    Google Scholar 

  • Buera, F. J., Kaboski, J. P., & Shin, Y. (2011). Finance and development: A tale of two sectors. American Economic Review, 101(5), 1964–2002.

    Article  Google Scholar 

  • Cattaneo, O., Gereffi, G., Miroudot, S., & Taglioni, D. (2013). Joining, upgrading and being competitive in global value chains: a strategic framework. The World Bank.

    Google Scholar 

  • Cherif, M., & Dreger, C. (2016). Institutional determinants of financial development in MENA countries. Review of Development Economics, 20(3), 670–680.

    Article  Google Scholar 

  • Cole, R., Cumming, D., & Li, D. (2016). Do banks or VCs spur small firm growth? Journal of International Financial Markets, Institutions and Money, 41, 60–72.

    Google Scholar 

  • De Backer, K., De Lombaerde, P., & Lapadre, L. (2018). Analyzing global and regional value chains. International economics, 153, 3–10.

    Article  Google Scholar 

  • Dollar, D., & Kidder, M. (2017). Institutional quality and participation in global value chains. Global Value Chain Development Report: Measuring and Analyzing the Impact of GVCs on Economic Development.

    Google Scholar 

  • Dollar, D., Ge, Y., & Yu, X. (2016). Institutions and participation in global value chains. Global value chain development report background paper. World Bank, Washington, DC.

    Google Scholar 

  • Eberhardt, M. (2012). Estimating panel time-series models with heterogeneous slopes. The Stata Journal, 12(1), 61–71.

    Article  Google Scholar 

  • Eberhardt, M., & Teal, F. (2011). Econometrics for grumblers: A new look at the literature on cross-country growth empirics. Journal of Economic Surveys, 25(1), 109–155.

    Article  Google Scholar 

  • Fernandez-Stark, K., Frederick, S., & Gereffi, G. (2011). The apparel global value chain. Duke Center on Globalization, Governance & Competitiveness.

    Google Scholar 

  • GEM. (2016). Global Entrepreneurship Monitor. Global Report 2015/2016. Available at https://www.gemconsortium.org/reporthttps://www.gemconsortium.org/report.

  • Gereffi, G., & Fernandez-Stark, K. (2016). Global value chain analysis: A Primer. Durham, North Carolina, USA: Duke University Center on Globalization, Governance & Competitiveness (Duke CGGC).

    Google Scholar 

  • Gereffi, G., & Lee, J. (2012). Why the world suddenly cares about global supply chains. Journal of supply chain management, 48(3), 24–32.

    Article  Google Scholar 

  • Hadri, K., & Kurozumi, E. (2008). A simple panel stationarity test in the presence of cross-sectional dependence.

    Google Scholar 

  • Ignatenko, A., Raei, F., & Mircheva, B. (2019). Global value chains: What are the benefits and why do countries participate? IMF Working Paper 19/18, International Monetary Fund, Washington, DC.

    Google Scholar 

  • ILOStat. (2018). ILO Database of Labour Statistics. International Labour Organization. Available at https://www.ilo.org/.

  • IMF. (2018). Financial Development Index Database. Available at https://data.imf.org/?sk=F8032E80-B36C-43B1-AC26-493C5B1CD33Bglobal/statistics-and-databases/lang--en/index.htm.

  • Kielyte, J. (2008). Estimating panel data models in the presence of endogeneity and selection. Journal of Economics and Econometrics, 51(2), 1–19.

    Google Scholar 

  • Koopman, R., Wang, Z., & Wei, S. J. (2014). Tracing value-added and double counting in gross exports. American Economic Review, 104(2), 459–494.

    Article  Google Scholar 

  • Kowalski P., & Lopez-Gonzalez J. (2016). Global value chains and developing countries: Drawing on foreign factors to enhance domestic performance. (Work in Progress).

    Google Scholar 

  • Kpodar, K. (2006). Développement financier, instabilité financière et croissance économique: Implications pour la réduction de la pauvreté (Doctoral dissertation).

    Google Scholar 

  • Laget, E., Osnago, A., Rocha, N., & Ruta, M. (2018). Deep trade agreements and global value chains. The World Bank.

    Google Scholar 

  • Levine, O., & Warusawitharana, M. (2019). Finance and productivity growth: Firm-level evidence. Journal of Monetary Economics. (in press).

    Google Scholar 

  • Levine, R. (2005). Finance and growth: Theory and evidence. Handbook of Economic Growth, 1, 865–934.

    Article  Google Scholar 

  • Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35, 688–726.

    Google Scholar 

  • Lu, Y., Lu, Y., Xie, R., & Yu, X. (2019). Does global value chain engagement improve firms’ wages: Evidence from China. The World Economy, 42(10), 3065–3085.

    Article  Google Scholar 

  • McGowan, A., Andrews, M. D., & Millot, V. (2018). The walking dead? Zombie firms and productivity performance in OECD countries. Economic Policy, 33(96), 685–736.

    Article  Google Scholar 

  • Midrigan, V., & Xu, D. Y. (2014). Finance and misallocation: Evidence from plant-level data. American Economic Review, 104(2), 422–458.

    Article  Google Scholar 

  • Miranda, R., & Wagner, R. (2015). Bad Neighbors: bordering institutions matter for comparative (Dis) advantage. In Midwest International Trade Conference (October), Pennsylvania State University.

    Google Scholar 

  • Miroudot, S., & Cadestin, C. (2017). Services in global value chains: Trade patterns and gains from specialisation. Documents de travail de l’OCDE sur la politique commerciale, n° 208, Éditions OCDE, Paris. https://doi.org/10.1787/06420077-en.

  • OCDE. (2013). Économies interconnectées: Comment tirer parti des chaînes de valeur mondiales (Rapport de synthèse en français). Publication de l’OCDE, Paris. 65 pp.

    Google Scholar 

  • Osnago, A., Rocha, N., & Ruta, M. (2016). Deep agreements and global value chains. Global Value Chain Development Report.

    Google Scholar 

  • Page, J., & Tarp, F (Eds.). (2017). The practice of industrial policy: Government—Business coordination in Africa and East Asia. Oxford University Press.

    Google Scholar 

  • Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. CESifo Working paper series N° 1229; IZA Discussion Paper N° 1240. August. Available at SSRN: https://ssrn.com/abstract=572504.

  • Pesaran, M. H. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica, 74(4), 967–1012.

    Google Scholar 

  • Pesaran, M. H., Ullah, A., & Yamagata, T. (2008). A bias‐adjusted LM test of error cross‐section independence. The Econometrics Journal, 11(1), 105–127.

    Google Scholar 

  • Rodrik, D. (2018). New technologies, global value chains, and developing economies (N°W25164). National Bureau of Economic Research.

    Google Scholar 

  • Schumpeter, J. A. (1912). The theory of economic development: An inquiry into profits, capital, credit, interest, and the business cycle. (pp. 244). Published in 1934, Transaction Publishers.

    Google Scholar 

  • Schumpeter, J. A. (1939). Business cycles (Vol. 1, pp. 161–174). New York: McGraw-Hill.

    Google Scholar 

  • Semykina, A., & Wooldridge, J. M. (2010). Estimating panel data models in the presence of endogeneity and selection. Journal of Econometrics, 157(2), 375–380.

    Article  Google Scholar 

  • Simonsohn, U. (2018). Two lines: A valid alternative to the invalid testing of U-shaped relationships with quadratic regressions. Advances in Methods and Practices in Psychological Science, 1(4), 538–555.

    Google Scholar 

  • Stiglitz, J. E. (1997). The role of government in economic development. In Annual World Bank Conference on Development Economics (Vol. 1996, pp. 11–23). Washington DC: World Bank.

    Google Scholar 

  • Stiglitz, J. E. (2005). More instruments and broader goals: Moving toward the Post-Washington consensus. In Wider perspectives on global development (pp. 16–48). Palgrave Macmillan, London.

    Google Scholar 

  • Svirydzenka, K. (2016). Introducing a new broad-based index of financial development. IMF Work-ing Papers. WP/16/5.

    Google Scholar 

  • Tinta, A. A. (2017). The determinants of participation in global value chains: The case of ECOWAS. Cogent Economics & Finance, 5(1), 1389252.

    Article  Google Scholar 

  • UNCTAD. (2013). Global value chains: Investment and trade for development. In World investment report. New York and Geneva, United Nations Conference on Trade and Development, United Nations Publishing.

    Google Scholar 

  • UNCTAD-EORA GVC. (2018). The Eora Multi-Region Input-Output Database. http://worldmrio.com.

  • UNDP. (2018). Human Development Data (1990–2018). Human Development Reports. United Nations Development Programme. http://hdr.undp.org/en/data.

  • WDI. (2018). World Development Indicators. World Bank. Available at https://databank.worldbank.org/source/world-development-indicators.

  • Westerlund, J. (2008). Panel cointegration tests of the Fisher effect. Journal of Applied Econometrics, 23(2), 193–233.

    Article  Google Scholar 

  • Westerlund, J., & Edgerton, D. L. (2007a). A panel bootstrap cointegration test. Economics Letters, 97(3), 185–190.

    Article  Google Scholar 

  • Westerlund, J., & Edgerton, D. L. (2007b). New improved tests for cointegration with structural breaks. Journal of Time Series Analysis, 28(2), 188–224.

    Article  Google Scholar 

  • WGI. (2018). The Worldwide Governance Indicators project. World Bank. Available at https://info.worldbank.org/governance/wgi/.

  • World Bank. (2013). Global financial development report 2014: financial inclusion (English). Global financial development report. Washington, DC: World Bank Group. http://documents.worldbank.org/curated/en/225251468330270218/Global-financial-development-report-2014-financial-inclusion.

  • World Bank. (2019). World Development Report 2020, Concept Note, January 11, 2019.

    Google Scholar 

  • World Bank, IDE–JETRO, OECD, RCGVC-UIBE & WTO. (2017). Measuring and analyzing the impact of GVCs on economic development. Global Value Chain Development Report, 2017, 189.

    Google Scholar 

  • Zins, A., & Weill, L. (2016). The determinants of financial inclusion in Africa. Review of Development Finance, 6(1), 46–57.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Faculty of Economics and Management (FSEG), University of Yaoundé II, 8370, Soa, Cameroon

    Françoise Okah Efogo

Authors
  1. Françoise Okah Efogo
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Françoise Okah Efogo .

Editor information

Editors and Affiliations

  1. Center for Research on Political Economy (CREPOL), Dakar, Senegal

    Diery Seck

Rights and permissions

Reprints and permissions

Copyright information

© 2020 The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Okah Efogo, F. (2020). Financial Development and African Participation in Global Value Chains. In: Seck, D. (eds) Financing Africa’s Development. Advances in African Economic, Social and Political Development. Springer, Cham. https://doi.org/10.1007/978-3-030-46482-0_3

Download citation

Publish with us

Policies and ethics

Search

Navigation