LMICs to HICs in the same industry in a given year, destination country-sector-time fixed effects as well as country pair-year and country pair-sector fixed effects.

These results remain qualitatively similar in a specification where industry-level trends in robot adoption in other countries with similar levels of income is used as an instrumental variable for a given country’s robotization. However, the quantitative impacts are somewhat larger, and the threshold effects are reached at lower levels of automation. Now, about 28 percent of the sample is above the threshold level of robots per 1,000 employees beyond which additional automation results in a deceleration in the growth of FDI. Here, for the most automated country-sectors comprising about 3 percent of the sample, the negative quadratic effect more than offsets the positive linear term. This is indicative of automation leading to declines and not just decelerations of FDI. However, for more than two-thirds of the sample, automation has resulted in FDI increasing at an increasing rate.

This paper contributes to a broader literature, which analyzes how the diffusion of ICT technologies affects global production fragmentation and international trade patterns more generally by reducing coordination costs. Freund and Weinhold (2004) suggest that a 10percentage point increase in the growth of web hosts for the average country in the sample contributed to about a 1 percentage point increase in annual export growth. Similarly, Osnago and Tan (2016) find that a 10 percent increase in an exporter’s rate of Internet adoption led to a 1.9 percent increase in bilateral exports. Furthermore, Fort (2017) shows that the adoption of communication technology is associated with a 3.1 percentage point increase in the probability of production fragmentation based on a sample of U.S. firms. There is also evidence that ICT-enabled e-commerce platforms have boosted international trade by reducing the costs of matching buyers and sellers. For example, Lendle and Olarreaga (2017) find that the impact of distance on crossborder trade flows—across 61 countries and 40 product categories—is about 65 percent smaller for eBay transactions relative to total international trade.

This paper also adds to an emerging literature which seeks to identify the impact of industrial robots on a range of economic outcomes. Taking into account both the displacement and productivity effects of automation, Acemoglu and Restrepo 2017 find that the use of one more robot per 1,000 workers reduced the aggregate employment to population ratio by about 0.34 percentage points from 1990 to 2007 in the United States. For a sample of 17 advanced economies, Graetz and Michaels (2018) calculate that robot densification from 1993-2007 raised the annual growth of labor productivity by about 0.36 percentage point (compared to a mean growth of 2.4 percent). They also find significant negative implications of robots for the employment of lowskilled workers. Maloney and Molina (2016) look for evidence of polarization in labor markets in developing countries as a result of spreading automation and trade, but find limited evidence to date – although they flag automation in China as a key development still in relatively early stages that should be watched. Using administrative data on Mexican exports by municipality, sector and destination from 2004 to 2014, Artuc, Christiaensen, and Winkler (2019) show that higher exposure to U.S. automation did not affect overall wage or manufacturing employment. Yet, there were two counteracting forces; exposure to U.S. automation reduced manufacturing wage employment in areas where occupations were initially more susceptible to being automated, but exposure increased manufacturing wage employment in other areas.

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