Automation, Trade and Multinational Activity: Micro Evidence from Spain

Abstract

We use a rich data set of Spanish manufacturing firms from 1990 to 2016 to shed new light on how automation in a high-income country affects trade and multinational activity involving lower-income countries. By exploiting supply side improvements in the capabilities of robots over time, as described in patents, we show that contrary to the speculation that automation will cause 're-shoring', the use of robots in Spanish firms actually had a positive impact on their imports from, and number of affiliates in, lower-income countries. Robot use causes firms to expand production, increase productivity and increases the probability that they start importing from, or opening affiliates in, lower-income countries. The sequencing of automation and offshoring has important consequences for the impact of automation, however. For firms that were offshoring to lower-income countries before they starting to use robots, robot adoption had no effect on the value of imports from lower-income countries, but decreased the share of imports sourced from lower-income countries. By contrast, for firms that had not already off-shored to lower-income countries, robot adoption made them more likely to start doing so. We show that these findings can be explained in a framework that incorporates firm heterogeneity, the choice between automation, offshoring and performing tasks at home and where automation and offshoring both involve upfront fixed costs, such that their sequencing matters.