growth and prosperity in Sub-Saharan Africa. A key avenue to spur Africa’s structural transformation via agriculture is to increase productivity, by adding value to the region’s natural resources, and foster diversification (that is, product variety and new tasks linked to manufacturing and services). Joining global and regional value chains that link the three economic sectors can foster productivity growth through spillover effects.

# **_Joining GVCs Can Foster Productivity Growth and Structural Transformation_**

World trade, investment, and production are increasingly organized around regional value chains (RVCs) and GVCs—a full range of activities ranging from design, production, and marketing, to logistics, distribution, and support that firms engage in to bring a product to the market. The rise in importance of GVCs and RVCs means that exports represent only part of trade-driven structural change. Measures of trade in value added—as opposed to traditional gross measures of trade—can provide insights into integration into global value chains and the benefits this entails.

The impact of GVCs on productivity and employment occurs through various channels. First, forward linkages by selling intermediates can spur production in upstream sectors. Second, backward linkages occur by purchasing international inputs that can be accessed at lower price and higher quality. Third, domestic firms can experience productivity increases through technology spillovers, and fourth, via skills demand (training). Fifth, GVC participation increases the competition for limited resources, implying positive market restructuring effects (Winkler and Farole 2015).

Although the economic literature has provided strong evidence that openness to trade and investment can be important drivers of productivity growth, studies that analyze the impact of GVC participation on productivity are just beginning to emerge. For instance, Baldwin and Yan (2014) examine the link for Canadian manufacturing firms over 2002–06. They find that although more productive firms are better equipped to join GVCs, GVC starters also become more productive. Using propensity score matching and difference-in-difference methods, the authors estimate that firms experienced 5 percent higher productivity growth after joining a GVC, measured by Statistics Canada’s Annual Survey of Manufactures, compared with non-GVC firms.

In terms of Africa-specific research, Winkler and Farole (2015) test the transmission channel of GVC integration, proxied by the export share and share of imported inputs, on firm-level productivity for Namibia, South Africa, and Swaziland. Using data from the World Bank’s Enterprise Surveys, the authors find a strong positive correlation in all the examined countries, with the highest impact observed in Namibia. Swaziland faces difficulties in turning GVC integration into productivity gains, given its generally low level of investment and reliance on South Africa as a source of inputs and as destination market.

Looking at agriculture-specific studies from various countries and particularly from Honduras, Staritz and Reis (2013) outline the potential benefits of various forms of upgrading in horticulture. Functional upgrading as a shift to production of higher value-added agricultural products can increase the demand for and access to multiple new markets. The constraints to be addressed are certification in global standards and training, such as Global Good Agricultural Practices; transportation infrastructure; and market information in combination with access and tariffs. Furthermore, product upgrading in the horticulture sector—defined as product diversification into multiple different crops and upgrading of products into higher-value products—is expected to generate increased returns to investment for infrastructure and land resources. Process upgrading that involves installation of greenhouse technology and drip irrigation technology, as well as the 9