Industrial automation as a driver of job creation through greater integration into GVCs

The evidence on the final effect of industrial automation on employment is still inconclusive. We argue that automation leads to employment creation when there are greater trade opportunities because productivity growth lead to scale effects that outweigh displacement effects, in line with the traditional argument of trade gains based on comparative advantages but augmented by automation. On the import side, industrial automation increases the demand for raw materials and standardized intermediate inputs. On the export side, an increased production at lower cost benefits from greater access to the world market. Exploiting cross-country variation in population aging combined with global industry trends in robot adoption, we find that industries experiencing greater automation exhibit higher increments in their (backward and forward) participation in GVCs, output and employment, than less exposed industries; and no differential effects on the average wage or labor’s share of value added. Interestingly, our estimates suggest that greater integration into GVCs is associated with both increased robot adoption and employment gains from automation. Finally, we find that growing robot adoption in industry’s export destinations is related to increased robot adoption in the domestic market, which supports a demand-driven explanation for automation.