same sector decline by 5.7 percentage points.<sup>2</sup> Last, but not least, comparing growth in hearing aid trade – which is entirely 3D printed – with other similar products and controlling for a range of other relevant variables that might have changed during this period, Freund, Mulabdic and Ruta (2019) find that 3D printing increased trade by 58 percent over nearly a decade. They also indicate that there is no reversal in comparative advantage and early innovators in Europe, such as Denmark and Switzerland, remain the main export platforms.<sup>3</sup> This paper contributes to this evidence base by analyzing the association between the intensity of robot use in high-income countries and offshoring as manifested in greenfield foreign direct investment flows from high-income countries to low- and middle-income countries. Unlike trade flows and other investments, which can be sticky and slow to change in response to other factors, these greenfield FDI data represent announcements and are therefore forward-looking. The intensity in use of robots has been steadily increasing in high-income countries over the last two decades, albeit differently across manufacturing industries. Among key GVC sectors, whereas transportation equipment and electronics have been steadily robotized since the 2000s, apparel remains relatively labor intensive. The rate of adoption across countries is also different, providing important sector-country-time variation. Based on country-sector panel data on FDI and industrial robots between 2004 and 2015, we find a 10 percent increase in the number of robots per 1,000 employees in HICs is associated with a 5.5 percent increase in the rate of change of the FDI stock from HICs to LMICs.

However, the relationship is not a linear one. Indeed, allowing for the effect to vary with the extent of automation finds there is a significant non-linear effect. The linear effect remains positive and significant. Past a threshold, however, the continued robotization is associated with a statistically significant decline in the rate of change in outbound FDI from HICs to LMICs. At the sample mean of robots per 1,000 workers (7.6), approximately one-third of the linear effect of automation is offset. At just over 24 robots per 1,000 employees is where the positive impact of automation is greatest. After that, continued robotization is associated with an increase in the growth of FDI but at a diminishing rate. However, less than 10 percent of the sample is above this threshold level of the intensity of robot use. The threshold level beyond which the marginal impact of the negative quadratic term outweighs the positive linear one to imply that further automation (578 robots per 1,000 employees) leads to an actual decline in outbound FDI from HICs to LMICs is not within the current range of data. Therefore, the increased intensity of robot use in HICs is associated with growth in outbound FDI from HICs to LMICs, which is increasing at an increasing rate for approximately 90 percent of the sample.

These results are robust to business cycle effects associated with the recent financial crisis, the exclusion of the transportation equipment sector, the inclusion of the stock of ICT capital per 1,000 workers engaged, and the inclusion and exclusion, respectively, of China as a source and destination country. Their robustness is also illustrated through an analysis of bilateral FDI flows where arm’s length offshoring, market size effects, FDI restrictions and bilateral trade or investment agreements, respectively, were controlled by the inclusion of bilateral exports from

> 2 The positive impact of robotization in the North on imports from the South is mainly driven by exchanges of parts and components.

> 3 Beyond hearing aids, the authors find that 35 products that are increasingly being 3D printed have also experienced faster trade growth relative to other similar goods.

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