The Role of Foreign Direct Investment and Trade Openness in Global Value Chain Participation in Africa: A Case Study of the AfCFTA

Abstract

This study explores the complex relationship between Foreign Direct Investment (FDI) inflows, trade openness, and Global Value Chain (GVC) participation in African countries, highlighting how economic development moderates these effects within the African Continental Free Trade Area (AfCFTA). Using panel data regression analysis, the findings demonstrate that while FDI and trade openness positively influence GVC participation, their impact is more pronounced in advanced economies like South Africa and Kenya, which possess stronger infrastructure and human capital. Conversely, less developed nations, such as Ethiopia, remain limited to low-value-added activities due to structural deficiencies. Although the AfCFTA holds promise for enhancing regional integration, significant improvements in infrastructure and governance are essential for maximizing GVC engagement. These results offer strategic insights into optimizing Africa’s global trade role and guiding international investment.