Foreign Direct Investment, Global Value Chain Participation, and Sustainable Development in Sub‐Saharan Africa

Abstract

ABSTRACT This study empirically examines the relationship existing among Global Value Chain (GVC) participation, Foreign Direct Investment (FDI), and sustainable development within sub‐Saharan Africa (SSA) from 2000 to 2023, leveraging data from 39 countries. Employing a Panel Vector Autoregression (PVAR) approach, the study analyzes the dynamic and bidirectional relationships among these variables, addressing critical issues such as endogeneity, heterogeneity, and cross‐sectional dependence. Empirical results reveal that increased participation in GVC participation positively contributes to sustainable development, although the impact is limited and short‐lived. Similarly, FDI was found to significantly enhance sustainable development, underlining its catalytic role in SSA economies. Conversely, the regulatory framework demonstrates mixed results; stricter regulations, unexpectedly, exhibit a negative direct impact on sustainable development, but positively respond to increased sustainable development performance, highlighting potential delays, or indirect pathways through which regulations affect sustainability. Variance decomposition analysis underscores the importance of GVCs, FDI, and regulatory intensity as drivers influencing sustainable development outcomes, while impulse response functions further explain the temporal effects of shocks across these variables. The study recommends policies fostering technological innovation, targeted green investments, and robust regulatory frameworks to maximize the sustainable development benefits derived from GVC integration and FDI inflows.