Does financial inclusion increase participation in global value chains? Evidence from African countries

Abstract

The present paper assesses how financial inclusion promotes the participation of Africa in global value chains (GVC), contingent on financial development and institutional quality. We consider 32 African countries over the period 2004–2018, and rely on fixed effects regressions and the Lewbel (2012) instrumental variable technique. Our findings show that financial inclusion promotes the participation of countries in GVC. Moreover, financial development and institutional quality are mechanisms by which financial inclusion indirectly promotes the participation of corresponding countries in GVC. It follows that financial inclusion has both direct and indirect positive effects on GVC participation. Our results underscore the need for integrated policy frameworks that strengthen inclusive finance, deepen financial sector development, and improve institutional quality to boost African economies’ participation in international production networks.