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Informal Economy and Global Value Chain Participation in Sub-Saharan Africa: Do Technological Readiness and Institutional Quality Make any Difference?

In: Economic Transformation in Sub-Saharan Africa, Volume I

Author

Listed:
  • Emmanuel Y. Gbolonyo

    (University of Cape Town, School of Economics, Private, Rondebosch)

  • Solomon Aboagye

    (University Ghana, Department of Economics)

Abstract

Following the establishment of the African Continental Free Trade Area (AfCFTA), Sub-Saharan Africa (SSA) is poised to integrate into global value chains (GVCs) and emerge as a key driver of global economic activity by leveraging cross-border trade and industrial connections. However, the scope and sustainability of this integration remain contingent upon the region’s preparedness in terms of technological innovation and institutional frameworks. This chapter examines the relationship between informal economy and GVC participation in SSA. This chapter further assesses the effects of technological readiness and institutional quality on the informal sector – GVC participation nexus. Using the system GMM estimator on a panel of 25 SSA countries from 2008 to 2019, we find that a large informal sector significantly reduces the region’s participation in global value chains (GVCs). Comparatively, the negative effect of informal economy is more pronounced for backward participation (foreign value added) than for forward participation (domestic value added). However, we find that technological readiness moderates SSA’s informal sector towards GVC participation. Similarly, institutional quality plays a crucial role in supporting the informal sector to integrate into GVCs. Based on the findings, this chapter offers several policy recommendations that enhance integration of the informal sector into GVCs.

Suggested Citation

  • Emmanuel Y. Gbolonyo & Solomon Aboagye, 2026. "Informal Economy and Global Value Chain Participation in Sub-Saharan Africa: Do Technological Readiness and Institutional Quality Make any Difference?," Springer Books, in: Ayodotun Stephen Ibidunni & Evans S. Osabuohien (ed.), Economic Transformation in Sub-Saharan Africa, Volume I, pages 17-54, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-77821-6_2
    DOI: 10.1007/978-3-031-77821-6_2
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    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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