The recent slump in international trade was not a result of advancements in digitalisation and automation, a new UNTANGLED study finds. In fact, the adoption of robots and widespread use of information and communications technologies are strengthening the global organisation of production rather than leading to reshoring, as some have assumed.
“Digitalisation and automation aren’t as detrimental to the current organisation of production networks as previously thought,” said Isabelle Rabaud, a professor in international economics at Université d’Orléans, in France, and co-author of the study.
“Rather, technologies tend to strengthen existing backward and forward links that already exist between countries,” Rabaud said.
Economists have long understood that robotics and high-tech innovations can fuel productivity gains, but little focus has been paid to how technology affects where production is located globally. This knowledge gap includes whether the adoption of robots will lead to “reshoring,” the process of returning production to Europe from abroad.
To address this academic shortcoming, Rabaud together with colleagues from Université d’Orléans, Camelia Turcu and Marcel Voia and Robert Stehrer from the Vienna Institute for International Economic Studies, reviewed data from the OECD, the World Bank, the Centre d’Études Prospectives et d’Informations Internationales (CEPII), and the International Federation of Robotics. Using these data as inputs, the researchers created two models to test technologies’ effect on production networks.
In the first model, foreign value added in gross exports was analysed from 63 origin countries present in the exports of 27 EU destination countries. Internet use and broadband subscriptions were used to determine the role of digitalisation on the importance of backward global value chain (GVC) participation. The researchers speculated that higher degree of diffusion of ICTs would raise backward linkages in line with easier communication and lower costs of coordination.
Twenty-eight sectors in 36 non-EU countries of origin were examined. Sectors included transport, postal activities, accommodation and food services, insurance, and financial services.
To capture the effects on forward GVC participation, the researchers created a second model to simulate the effect of robot use in imported intermediate products (such as raw materials, ingredients, energy, and services) on the receiving industry in the destination country.
Using gravity equations, the researchers confirmed that the industrial use of robot, internet use and fixed broadband subscriptions in both origin and destination countries tend to increase fordward GVC participation. Results on backward GVC participation were more mixed.
“As economist Richard Baldwin famously suggested, technology enabled localized concentration of production and trade, in what he termed ‘factory Europe,’ ‘factory Americas,’ and ‘factory Asia,’” said study co-author Stehrer. “Our findings reinforce this and confirm technology’s leading role in the regional organisation of production.”
Rabaud,I., Stehrer, R., Turcu, C., Voia, M. (2023). The impact of technology and connectivity on trade patterns (Deliverable 3.4). Leuven: UNTANGLED project 1001004776 – H2020.
The paper is available here.