Foreign direct investment and participation of developing countries in global value chains: lessons from the last decade

ABSTRACT

This study investigates how foreign direct investment (FDI) affects the participation of developing countries in global value chains (GVCs). This inquiry is crucial as FDI is seen, at least theoretically, as a means of expediting developing countries’ participation in GVCs in some ways. It provides empirical evidence of this nexus between FDI and GVC using a dynamic panel data model including 43 developing countries (2010–2019). Our results show, among other things, that FDI has a significantly positive effect on the participation of developing countries in GVCs. This is found to be the case regardless of whether the FDI is in the primary, secondary or tertiary sector. However, to benefit fully requires policymakers to strengthen the absorptive capacity of the local labour force (productivity and education level).

KEYWORDS:

• FDI
• global value chains (GVC)
• foreign value-added (FVA)
• domestic value-added (DVA)
• developing countries

Acknowledgements

The authors are grateful to the editor and the anonymous referee for useful comments that help in improving the paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Sometimes referred to in the literature as trade in parts, trade in value-added, or trade in intermediate products.