The sectoral analysis of global value chains participation in South Africa: a panel data approach.

Abstract

Economists have been attempting to address a fundamental question since the dawn of the discipline: why do countries trade with each other? The main reason why countries need to trade with each other lies in the differences in resource endowments and different factors of production. The inability of a country to manufacture all the goods it requires gives it an incentive to trade. International fragmentation involves breaking down a unified process into different phases across different regions, promoting trade in intermediate goods, and ultimately creating global value chains. Engaging in global value chains (GVCs) and the international fragmentation of production can result in higher levels of employment and economic expansion. Evidently, many countries have experienced a shift in their development paradigm due to their integration into global value chains, providing them with new development opportunities. The present study endeavours to determine the factors attracting GVCs participation and examine whether global value chains participation leads to sectoral development in South Africa using secondary annual data from 1990 to 2022. Additionally, the study intends to provide some new findings for policymakers and scholars in South Africa. The study uses the panel autoregressive distributed lag model (P-ARDL) approach to investigate the short and long run relationships among the variables. The results reveal that in the long run all variables are statistically significant at 5% level, moreover, gross value added, and gross fixed capital formation positively contribute to global value chains participation. Whereas foreign direct investment and the exchange rate negatively contribute to participation in GVCs. These findings point out the following important policy implications: (1) investment policy, (2) firm development policy and (3) workforce development to boost South Africa’s integration in GVCs.