Industrial robots, 3D printing, and artificial intelligence are rapidly changing the face of global production and trade. Global sales of industrial robots reached a new record of 387,000 units last year and robot adoption is projected to grow in the coming years. Techno-pessimists fear that developing countries might lose the opportunity to export themselves out of poverty by linking into Global Value Chains (GVCs), as firms in rich countries relocate robot-driven production closer to home.
Techno-optimists, by contrast, argue that these and other new technologies boost productivity and create new opportunities for people and countries previously excluded from global value chains (GVCs). Who is right? In the World Development Report 2020 we take stock of the existing evidence and identify the opportunities that new technologies present for reducing poverty through GVCs.
In spite of anecdotal evidence that some firms are moving production back home (reshoring), the available data tells a different story. Analysis of the impact of robotization on bilateral trade flows over the past two decades suggests that, if anything, automation and 3D printing are boosting trade. A 10 percentage point increase in robots in advanced economies is associated with an 8.6 percentage point increase in imports of semi-finished products – what trade economists call ‘intermediates’ - from developing countries, and a 4.9 percentage point increase in imports of other goods from those countries. The strong impact of automation on imports, particularly of intermediates, proves the importance of GVCs. Advancements in 3D printing also seem to have stimulated trade. Trade in hearing aids shot up by 60 percent after production shifted almost entirely to 3D printing.
But not everybody wins from technological change. In the OECD, low-skilled workers have borne the brunt of the arrival of robots. The introduction of industrial robots in Mexico has also come at the expense of jobs of low-skilled workers. As a result, these workers are reliant on jobs that come with less security and lower wages. Digital technologies reward people with the skills to program, operate and adapt increasingly sophisticated machinery, widening the gap between workplace winners and losers.
While predicting the future is a treacherous exercise, fears that GVCs will become less important for development seem overblown. If anything, the evidence available suggests that certain technologies, such as robot adoption and 3D printing, have increased North-South trade. Moreover, other technologies, such as the internet, are dramatically reducing trade costs and offering unprecedented opportunities for linking into GVCs and reducing poverty.
This blog previews some of the analysis to be found in the forthcoming WDR2020 on Global Value Chains.