THE HETEROGENEOUS DETERMINANTS OF GLOBAL VALUE CHAIN PARTICIPATION IN ARAB ECONOMIES

Abstract

Despite their strategic location and resource wealth, Arab countries remain under- integrated into global value chains (GVCs), often confined to upstream hydrocarbon exports with limited domestic value addition. This paper examines GVC participation determinants across 13 Arab economies from 1995 to 2024, using a dynamic panel dataset analyzing oil exporters, diversified economies, and fragile states. Using fixed and random effects models with interaction terms and extending GVC indicators through a validated forecasting framework, the study reveals heterogeneous policy effectiveness. Results show economic development and trade openness enhance GVC integration, but key drivers vary by context. For oil exporters, digital infrastructure and human capital yield positive returns within resource-centric models, while exchange rate appreciation has limited effects due to dollar pegs. Diversified economies benefit from efficiency-seeking foreign direct investment and strong institutions but are sensitive to exchange rate competitiveness losses. In fragile states, basic digital access and primary education enable modest entry into low-complexity GVCs despite governance deficits. The findings show a uniform GVC strategy is ineffective for the Arab region. Instead, tailored policies-from strategic FDI attraction in diversified economies to foundational investments in fragile contexts-are essential. The paper provides the first comprehensive typology of Arab economies' integration pathways and offers context- specific policy guidance aligned with the Arab League's 2030 agenda.