November 13, 2016

Developing Countries, China and Advanced Countries are in a robot and automation race to lower manufacturing costs

A UN report outlines how the increasing use of industrial automation is impacting jobs in developing countries, and what strategies may help in overcoming the problem.

Advanced countries, China and developing countries all have to add more automation and robots and the supporting infrastructure and education in order to enable lower manufacturing costs

Key points
• Increased use of robots in developed countries erodes traditional labour-cost advantage of developing countries.
• Labor-intensive manufacturing in large developing countries with domestic production linkages is unlikely to be reshored to developed countries.
• Whatever the impacts, outcomes will be shaped by policies.
• Developing countries need to redesign education policies and embrace the digital revolution – this approach should be combined with supportive macroeconomic, industrial and social policies.

If robots are considered a form of capital that is a close substitute for low-skilled workers, then their growing use reduces the share of human labor in total production costs. Adverse effects for developing countries may be significant.

According to some estimates, for developing countries as a group, the “share of occupations that could experience significant automation is actually higher in developing countries than in more advanced ones, where many of these jobs have already disappeared”, and this concerns about two thirds of all jobs.

Reshoring economic activities to developed countries is one mechanism that could lead to shrinking output and employment in the manufacturing sector of developing countries.

A counterintuitive solution may actually be to introduce more robots. If developing countries had a sizable low-skilled workforce, comprised of both humans and robots, it might make them a more attractive option than other countries. Combining the two may actually create a better workforce than either human or robot alone, and mixing in other automation technologies, like 3D printing, might also help countries keep a competitive edge.


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