Institutional Quality, Bilateral Trade and Global Value Chains in Africa

The importance of trade and institutions as drivers of economic growth and development has been established in both theoretical and empirical literature. Moreover, global value chains (GVC) propels substantial expansion in international trade across the globe over the last two decades. However, the institutions-GVC link and institutions-bilateral trade nexus in Africa suffers complete neglect in international trade research. This is despite the dismal performance of the continent in institutional quality, bilateral trade and GVC participation. Therefore, this thesis evaluates the effect of institutional quality on bilateral trade and GVC participation in Africa. In the first part, Poisson Pseudo Maximum Likelihood with High-Dimensional Fixed Effects estimator (PPMLHDFE) is applied to estimate Structural Gravity Model for the evaluation of the impact of both political and economic institutions on bilateral exports, imports and aggregate trade. A sample of 37 Sub-Sahara African countries with 124 of their trading partners for the period 2000-2018 was used for the analysis. The second part investigates the impact of institutions on backward, forward and total GVC participation as well as GVC position (upstreamness) in Africa using system-GMM estimator for a sample of 47 African countries over the period 2000-2018. The findings reveal that both political and economic institutions are significant determinants of bilateral trade and GVC participation in Africa. However, the popular submission of previous studies that institutions generally have positive impact on international trade does not apply in this case. The effects of the institutional factors are heterogeneous depending on the components of institutional quality, bilateral trade, GVC participation and income groups of the countries. Thus, this thesis offers appropriate policy recommendations on the appropriate institutional framework to adopt for the improvement of bilateral trade and GVC participation in the continent. Keywords: Institutional quality, bilateral trade, global value chains, Africa.