An empirical assessment of the nexus between competition policy and global value chains

Efficient institutions matter in promoting Global Value Chains (GVCs) participation since they help reduce transaction costs for firms that engage in trade. Competition policy is considered an important dimension of these institutions. Thus, this paper investigates whether competition policy matters for participation in GVCs in a group of about 112 countries, with a special focus on a sample of 30 African countries. To do so, we use the EORA dataset on backward and forward linkages and merge it with different indicators pertaining to the de jure (existence of competition law and its age) and the de facto (market dominance and anti-monopoly measures) measures of competition policy. We find that both the de jure and the de facto dimensions of competition policy matter for backward and forward GVC participation. The findings also show that de jure measures matter more than de facto ones. In addition, our findings indicate that this relationship is non-linear as the market can become saturated. Two important transmissions channels can explain this effect, namely, market diversification and trade liberalization. These results remain robust after we control for the endogeneity between GVC and competition by using an instrumental variable approach where the instruments are the level of enforcement of the competition policy, the level of trade protectionism and the quality of institutions of the most important trade partner. In Africa, results remain unchanged, de jure and de facto competition measures are associated with more GVC participation with greater role for the de jure measures, and a non-linear relationship between variables of interest. In addition, de jure competition policies are more effective in enhancing GVC integration in countries with greater export diversification and higher tariffs.