Does global value chain participation drive firms’ innovation in South Africa?

Purpose This paper aims to examine whether participation in global value chains (GVCs) promotes firm-level innovation in South Africa. Despite being one of the most industrialized economies in Sub-Saharan Africa, South Africa exhibits persistently low innovation outcomes. Drawing on theories of learning and knowledge spillovers, this study assesses whether firms’ engagement in exporting, importing intermediate inputs and two-way trade linkages is associated with higher innovation propensities, and whether these effects depend on firms’ absorptive capacity. Design/methodology/approach The analysis uses firm-level data from the 2020 World Bank Enterprise Survey for South Africa. Innovation is measured through indicators of product and process innovation. GVC participation is captured using alternative trade-based measures. To address endogeneity arising from self-selection and reverse causality, this study uses an instrumental variables (2SLS) approach, complemented by extended probit estimations and propensity score matching. All specifications control for firm characteristics and include industry and regional fixed effects. Findings The results show that participation in global value chains significantly increases the likelihood of firm innovation. This relationship remains robust after accounting for endogeneity and selection bias. The innovation effects of GVC participation are heterogeneous and are stronger for firms with higher absorptive capacity, proxied by firm size, engagement in research and development and foreign ownership. The findings indicate that while GVC participation can facilitate learning and innovation, its benefits are conditional on complementary firm-level capabilities. Originality/value This study provides novel causal evidence on the GVC–innovation nexus in South Africa, a context that remains underexplored in the literature. By explicitly addressing endogeneity and firm heterogeneity, it refines GVC-based theories of innovation and offers policy-relevant insights for leveraging global integration to support innovation in emerging economies.