Foreign Direct Investment and Global Value Chains in Sub-Saharan African Firms

The objective of this paper is to examine the effect of foreign direct investment (FDI) and firms’ participation in global value chains (GVCs). To achieve this goal, we use rich firm-level data from the World Bank Enterprise Survey (WBES), spanning the period of 2006–2018, belonging to 44 sub-Saharan Africa (SSA) countries. In order to overcome the endogeneity issue, we use a recursive bivariate probit model to estimate the effect of FDI on GVC. The results indicate a positive effect of FDI on GVC participation, with exceptions in East Africa and in low-income countries. Our results remain robust to alternative measures of FDI, GVC, and alternative specification model. Therefore, decisionmakers in SSA countries should promote an attractive business environment conducive to business partnerships to facilitate the participation into the GVCs. However, policy responses must be differentiated and complementary, in order to benefit countries that do not have sufficient absorption capacity.