Impact of Economic Institutions on Participation in the Global Value Chain: Evidence from the MENA Countries

Abstract

This study empirically investigates the association between economic institutions and global value chain (GVC) participation, through forward linkages, backward linkages, and GVC participation for 13 MENA countries. The study uses a panel data estimation method controlling for time and country fixed effects to estimate the static model and a system generalized method of moments (system-GMM) estimation to estimate a dynamic model. The main findings indicate that economic institutions play a substantial role in predicting the GVC integration variables. Specifically, we find that the forward linkages rise with property rights and business freedom suggesting a suitable business environment for inputs exports used in countries export. We find that the backward linkages increase with business freedom and decline with government integrity, which may be suggestive that imported intermediate used in export are substituted by increasing domestic goods as a result of better integrity in government procedures leading the foreign value added to decline. Finally, GVC participation rises with property rights and business freedom and declines with government integrity which seems to be driven by the backward linkages’ component.

Keywords: GVC participation, Economic Institutions, Trade

JEL Classification: O430, F140, F680