Economic development in a globalized world: the role of Global Value Chains - Three essays on implications and opportunities for North Africa

Global Value Chains (GVCs) emerged in the last decades and changed the landscape of the international organisation of production. Thanks to the reduction of transport costs and to the development of new technologies the production process increasingly fragmented into single phases carried out by different firms, also located in different countries. This led to the birth of a dense international network of production with multiple commercial and financial linkages between firms and countries. Such a complex architecture offers remarkable advantages, such as reduced procurement costs and high degrees of local/regional specialization, but also exposes to relevant risks and sources of instability, especially in the presence of unexpected shocks. For this reason, the international production network and GVCs emerged as an important topic in the international economic literature. In this globalization process, developed countries have so far had a central role: they have the highest shares of GVCs participation, extract the largest part of value added, and are positioned in the most profitable segments of the chains. However, GVCs may offer remarkable opportunities also for developing countries (Taglioni and Winkler 2016; World Bank 2019, 2020). This project focuses on the role that GVCs may have in the development process of North Africa. This area is trying to emerge from the group of middle income countries and enter a stable development path. However, the financial crisis of 2008 and the series of Arab Spring revolutions have undermined the progresses achieved over the past decades. In this scenario, the COVID-19 pandemic poses further serious concerns. Addressing economic development for the whole area is complex. Despite having suffered common shocks as well as sharing many demographic, cultural and social characteristics, the economic structure of these countries is different. Algeria and Libya are highly dependent on revenues from raw materials such as oil and natural gas; Morocco and Tunisia have developed over the years an advanced manufacturing fabric thanks also to the entry of foreign multinationals into domestic economy; finally, Egypt has an economic structure where traditional sectors, such as shipbuilding and agriculture, coexist along with advanced ones such as ICT. In light also of this diversity, my research is structured as a series of self-contained chapters focused on the analysis of specific issues concerning the role of GVCs on development. In particular, in the first chapter I address the impact of GVCs participation on firm productivity. The issue has been widely discussed in the literature: while first studies pointed out the existence of just a self-selection mechanism into international markets according to productivity, evidence came out about a learning by participating effect. The chapter enriches this literature by investigating Egyptian firms’ performances in the aftermath of the Arab Spring revolution. I find a positive and significant impact of GVCs participation on firm productivity, especially for domestic firms. In the second chapter, I investigate the relationship between firm GVCs participation and FDI activity using French administrative data. Relying on a very recent strand of literature, I hypothesise and prove that the direction of FDI follows and is caused by firm pattern of trade. Introducing governance indicators, I find changes in the general relationship according to countries' development. Moreover, a focus on NA reveals the peculiarity of this area. Finally, in the last chapter, I link the literature on GVCs with the Economic Complexity (EC) approach (Hidalgo et al., 2007; Hidalgo and Hausmann, 2009). The latter provides new tools and metrics to measure countries economic performances and offers interesting insights to study economic development. I link these strands of literature by applying the Product Space and other EC metrics to the study of GVCs. I also provide a new index to measure countries GVCs participation coherent with the EC approach. These contributions are then applied to the case study of NA countries. All in all, the research proves the importance of internationalisation for economic development. Integrating into GVCs, firms may increase their performances, and therefore countries improve their position and widen their linkages into the international production network.