Automation-induced reshoring and potential implications for developing economies

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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.
Original languageEnglish
PublisherUNU-MERIT
Publication statusPublished - 22 May 2023

Publication series

SeriesUNU-MERIT Working Papers
Number018
ISSN1871-9872

JEL classifications

  • o33 - "Technological Change: Choices and Consequences; Diffusion Processes"
  • d33 - Factor Income Distribution
  • e25 - Aggregate Factor Income Distribution
  • f14 - Empirical Studies of Trade
  • f17 - Trade: Forecasting and Simulation
  • f47 - Macroeconomic Aspects of International Trade and Finance: Forecasting and Simulation: Models and Applications
  • j21 - Labor Force and Employment, Size, and Structure

Keywords

  • Reshoring
  • Automation
  • Specialization
  • Developing Countries
  • Advanced Countries

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