Automation-induced reshoring and potential implications for developing economies

Hubert Nii-Aponsah, Bart Verspagen and Pierre Mohnen
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Hubert Nii-Aponsah: RS: GSBE other - not theme-related research, Mt Economic Research Inst on Innov/Techn

No 2023-018, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: Technological progress in automation technologies, such as Artificial Intelligence (AI), is expected to impact production activities beyond the home country adopting them as countries interact within the global trade system. Firms tend to offshore production activities to other countries when it is more profitable to produce elsewhere than at home. The adoption of automation technologies reduces the cost of producing in the home country, making previous offshore locations relatively less attractive. From a global perspective, the altered cost structure induces reshoring: a reorganization of production activities back home or to other lower-cost locations. Developing economies, which previously served as low-cost locations, could be adversely impacted by experiencing a drop in the production of the affected sectors and goods. This paper analyses the potential effect of automation on the global portfolio of trade specialization based on the principle of comparative advantage, employed in an extension of Duchin’s World Trade Model to include non-tradable sectors. Through scenario-based analyses within the global economic context and using data, primarily, from the World Input-Output Database (WIOD) and the International Assessment of Adult Competencies (PIAAC), we find that countries in lower-income Asia are likely to be the most adversely affected by reshoring induced by automation in advanced economies.

JEL-codes: D33 E25 F14 F17 F47 J21 O33 (search for similar items in EconPapers)
Date: 2023-05-22
New Economics Papers: this item is included in nep-ain, nep-int and nep-inv
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