Automated Deindustrialization: How Global Robotization Affects Emerging Economies—Evidence from Brazil

Abstract

There are growing concerns that automation technology may have far-reaching implications for development, by restructuring global value chains and substituting workers. This paper investigates how domestic and foreign automation impact a resource-rich emerging economy. The empirical analysis builds on a Ricardian model of trade and a shift-share approach. Differences in regional industrial compositions are used to translate domestic industry-level robot adoption to local labor markets in Brazil. Differential trade and inter-sectoral input–output linkages between a foreign industry and regions in Brazil are leveraged to construct a measure of exposure to foreign automation. Instrumental variables account for endogeneity in robot adoption. Larger exposure to foreign automation is found to decrease the share of manufacturing employment and increase the share of employment in the mining sector. These shifts are driven by changes in the demand for export goods from local labor markets. Domestic automation benefits higher skilled and female workers. The findings suggest that foreign automation may contribute to “premature deindustrialization” in emerging economies.