The Role of Automation from the Perspectives of the Monetary Model, Price Decomposition Model, and Demand-led Growth

Abstract

Over the past decade, automation has fundamentally reformed the production process, enhancing productivity and allowing humans to rubber stamping trivial tasks. However, the levels of automation vary significantly among nations, and the impact of such disparity of the levels of automation between countries remains unexplored. Aiming to provide a theoretical framework on the effect of the levels of the automation in a broader context, i.e., effect on the real exchange rate, real purchasing power, and hence the international competitiveness, this paper incorporates the overlapping generation model, long-run price decomposition model, revised absolute advantage theory in the real exchange rate, and Thirlwall's balance of payment constraint growth model. Within all three models, automation expands the real production capacity in one economy and, thus, enhances international competitiveness. Moreover, this paper sheds light on future research on trade imbalance, the balance of payment between countries with similar economic characteristics except for their levels of automation.