Global value chain participation and innovation: firm-level evidence from Africa

in: AERC Working Paper GVC-012, Nairobi: African Economic Research Consortium

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Firm-level innovation in developing countries is mostly incremental and depends on non-R&D activities. Integration into global production networks is one such activity that could help firms in developing countries to innovate. This is particularly the case since new technologies and foreign  knowledge diffuse through inter-firm linkages. This paper examines the relationship between Global Value Chain (GVC) participation and firm innovative capabilities in Africa, utilizing data from the World Bank’s Enterprise Survey (WBES). Addressing endogeneity arising from reverse causality, our  results show that firms in Africa that engage in GVC activities have a higher likelihood of introducing innovative products onto markets. The results are robust to alternative definition of GVC and innovation variables and identification strategy. Our findings shed light on the mechanisms that make  innovation possible within GVC firms, and the implications it has for trade, regional integration, and innovation in Africa.