Are Robots Shifting Foreign Direct Investments ?

Francesca de Nicola, Shawn W. Tan and Aaron Tang

No 11362, Policy Research Working Paper Series from The World Bank

Abstract: Industrial robots are rapidly changing global production processes, with large implications for patterns of foreign direct investments. The impact is ambiguous a priori. On the one hand, robotization may boost foreign direct investments since firms that have invested in robots increase their demand for complementary inputs. On the other hand, robotization may dampen foreign direct investments since firms have weaker incentives to outsource selected inputs and/or tasks. This paper finds that robotization at home boosts foreign direct investments, based on bilateral foreign direct investments data from 2003–21 across 65 countries. To uncover the underlying mechanism, the effect on foreign direct investments is decomposed into three components: capital per job (or capital intensity), jobs created per project (or labor intensity), and number of foreign direct investments projects. The positive effect of robotization in the source country on foreign direct investments is driven by increases in the number of projects and capital intensity, but not labor intensity. Decomposing foreign direct investments by business function reveals that this effect operates primarily through efficiency-seeking manufacturing investments rather than market-seeking activities, indicating that automation enhances firms' ability to establish complementary production networks abroad.

Date: 2026-04-27
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