Global value chains participation and productivity gains for North African firms

Abstract

The emergence of global value chains (GVCs) has provided some firms the opportunity to internationalize by specializing in the production of specific inputs or tasks along the chain, with a direct impact on a country's competitiveness. China, for instance, managed to enter low value added phases in GVCs to rapidly become a major player in world trade. Against this background, this paper asks whether North Africa, given its favourable geographic position in the Mediterranean and proximity to Europe, can grab similar opportunities. In particular, it analyzes the GVCs participation of North African firms and its implications for productivity. Since the coordination of vertically fragmented production processes increasingly relies on an adequate level of quality and reliability, especially when the inputs from several stages and locations must come together in a specific way, we identify firms involved in GVCs as traders with internationally recognized quality certification. Using a propensity score matching diff-in-diff method, the paper finds that firms that enter GVCs both perform better ex ante and show additional productivity gains ex post. Results suggest that policies designed to support certifications and compliance with international standards and to increase trust between firms in different countries, represent an important tool for linking developing countries to global production networks, with possible positive consequences on their economic development and growth.