Powering structural transformation and productivity gains in Africa: The role of global value chains and resource endowments

Abstract

Sixty years ago, many countries in Africa implemented various industrial policies to promote structural transformation and industrialization, all aimed at generating productivity gains. Today, the consensus seems to be that the region has since recorded moderate productivity gains and industrialization remains elusive. Participation in global value chains (GVC) has recently been highlighted as a pathway to fast-track development in terms of productivity gains and structural change in the region. This paper builds on these arguments and investigates how participation in GVC affects aggregate labour productivity growth and its two sub-components: within and structural change. It further examines how this relationship differs with the extent of country's natural resource endowments. The results show that participation in GVCs has a significant positive effect on productivity growth in Africa. This gain is largely through backward participation and is stronger for countries that are further from the productivity frontier. The analysis using the sub-components of productivity growth also shows that GVC participation has a positive and significant effect on productivity growth by inducing an efficient reallocation of resources within sectors (intra-sector reallocation) but not across sectors (inter-sector reallocation). Moreover, these benefits arise mostly in non-resource intensive and non-oil resource intensive countries. Overall, the results indicate that GVC participation matters for productivity growth in Africa but highlights differences in the channel of impact across countries with different natural resource endowments.