South-South vs North-South value chain integration and value addition in Sub-Saharan Africa

Abstract

China is now Africa's largest trading partner, having surpassed the United States (US) in 2008. This is a vital development because trade facilitates capital injection as well as knowledge and technology spillovers in developing economies like Africa. However, the China-Africa trade has been extensively criticized, with China alleged of exploiting Africa's natural resources while dumping low-quality products on the continent. The dumping narrative is worth investigating given that the trade balance has favoured China since 2012, and the mix of China's exports to Africa remains contentious. This study argues that, if the narrative is exaggerated, Africa’s backward value chain integration with China must contribute decisively to manufacturing output, industrial jobs, and/or total factor productivity (TFP), signifying a fair representation of intermediate inputs in China's exports to Africa, which the continent assembles for its export markets. The investigation is conducted in comparison to the US, as Africa’s traditional trading partner, based on evidence from 23 Sub-Saharan African countries over the period 2005–2018. Our two-step system GMM estimates indicate that the dumping narrative cannot be ruled out, and thus African governments must take appropriate action to stop the practice. Backward value chain integration with the US, on the other hand, boosts manufacturing output, indicating that the US has fared relatively well in maintaining its shares of foreign value added (FVA) in Sub-Saharan Africa.