Institutional quality and global value chain participation: empirical evidence from Latin America

Purpose This study aims to examine the impact of institutional quality on global value chain (GVC) participation across the selected seven Latin American countries. Design/methodology/approach This study uses Driscoll−Kraay’s standard error estimation technique, which controls for cross-sectional dependence, heteroskedasticity and autocorrelation, and is appropriate when the time element is larger than the cross-sectional element. Findings The findings reveal that control of corruption has a positive impact on forward and total GVC participation, while government effectiveness exhibits a nonlinear U-shape relationship, indicating that beyond a specific threshold, governance effectiveness may once again prove advantageous for forward and total GVC participation. Additionally, it was found that foreign direct investment, gross capital formation, gross domestic product per capita and internet use also affect forward, backward and total GVC participation; population does not influence any GVC dimension. Ultimately, this paper recommends pursuing appropriate policies with the primary goal of reforming institutions and creating a conducive environment for fostering GVC participation. Originality/value This study offers a rare, institution-focused empirical analysis of GVC participation in Latin America, integrating diverse governance quality measures and nonlinear governance impacts across various GVC facets, along with digital connectivity and macroeconomic fundamentals, within a unified panel framework.