Have Robots Grounded the Flying Geese?: Evidence from Greenfield FDI in Manufacturing

25 Pages Posted: 31 Dec 2019 Last revised: 2 Jan 2020

See all articles by Mary Hallward-Driemeier

Mary Hallward-Driemeier

World Bank - Research Department; World Bank - Development Research Group (DECRG)

Gaurav Nayyar

University of Oxford

Date Written: December 26, 2019

Abstract

For decades, manufacturers around the world have outsourced production to countries with lower labor costs. However, there is a concern that robotization in high-income countries will challenge this shifting international division of labor known as the "flying geese" paradigm. Greenfield foreign direct investment decisions constitute a forward-looking indicator of where production is expected, rather than trade flows that reflect past investment decisions. Exploiting differences across countries and industries, the intensity of robot use in high-income countries has a positive impact on foreign direct investment growth from high-income countries to low- and middle-income countries over 2004-15. Past a threshold, however, increased robotization in high-income countries has a negative impact on foreign direct investment growth. Only 3 percent of the sample exceeds the threshold level beyond which further automation results in negative foreign direct investment growth and is consistent with re-shoring. For another 25 percent of the sample, the impact of robotization on the growth of foreign direct investment is positive, but at a rate that is declining. So, although these are early warning signs, automation in high-income countries has resulted in growing foreign direct investment for more than two-thirds of the sample under consideration. Some geese may be slowing, but for now, most continue to fly.

Keywords: Common Carriers Industry, Food & Beverage Industry, Pulp & Paper Industry, General Manufacturing, Construction Industry, Business Cycles and Stabilization Policies, Plastics & Rubber Industry, Textiles, Apparel & Leather Industry, International Trade and Trade Rules, Transport Services, Labor Markets, Rural Labor Markets, Trade and Services

Suggested Citation

Hallward-Driemeier, Mary and Nayyar, Gaurav, Have Robots Grounded the Flying Geese?: Evidence from Greenfield FDI in Manufacturing (December 26, 2019). World Bank Policy Research Working Paper No. 9097, Available at SSRN: https://ssrn.com/abstract=3510400

Mary Hallward-Driemeier (Contact Author)

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/mhallwarddriemeier

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Gaurav Nayyar

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

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