# **1. Introduction**

During the last four decades, manufacturers all over the world have outsourced production to countries with lower labor costs. American, European, and Japanese firms moved a lot of their production to developing Asia and Latin America, first helping countries like Malaysia and Chile, then others like China and Mexico, and then others like Vietnam and Bangladesh. This shifting production of labor-intensive goods and tasks to countries with lower labor costs in a pattern that then reproduces itself among countries in the lower tiers is often described as the “flying geese” paradigm (Akamatsu 1962). There is widespread concern today that use of labor-saving technologies associated with Industry 4.0 — such as robotics, the Internet of Things, and 3-D printing — in established manufacturing centers may slow down opportunities for offshoring production to lower-cost locations and even lead to the active reshoring of production back to higher-wage locations.

There is an increasing amount of anecdotal evidence, which suggests that increased automation in high-income countries has already enabled some leading firms to re-shore historically laborintensive manufacturing activities back to high-income economies. Foxconn, the world’s largest contract electronics manufacturer, best known for manufacturing Apple’s iPhone, has recently announced it will spend $40 million at a new factory in Pennsylvania, using advanced robots (Lewis 2014). Airtex Design Group is shifting part of its textile production from China back to the United States ( _New York Times_ 2013). And there is the most cited example of Adidas, which established “Speedfactories” in Ansbach, Germany, and Atlanta, to produce athletic footwear using computerized knitting, robotic cutting, and 3-D printing ( _Assembly_ 2012; Bloomberg 2012; _Economist_ 2017a, 2017b; _Financial Times_ 2016).

Adidas’ recent announcement in November 2019 that it will close its “Speedfactories” in Germany and the United States may, on the one hand, assuage some of the fears the earlier headlines raised. On the other hand, the fact that these automated production lines will instead be moved to China and Vietnam where 90% of Adidas’ suppliers are currently located may yet ground the ‘flying geese’. This is not an isolated example. Foxconn—the Taiwanese firm known for producing Apple and Samsung products in China’s Jiangsu province—recently replaced 60,000 factory workers with industrial robots ( _South China Morning Post_ 2016). In fact, China has installed more industrial robots than any other country and is rapidly automating to address declining wage competitiveness. This is important given that China’s rising wages and production upgrading had created expectations of an en masse migration of light manufacturing activities to poorer economies with lower labor costs, such as those in Sub-Saharan Africa.

More systematic evidence on automation and offshoring is few and far between. Based on firmlevel data for 3,313 manufacturing companies across seven European countries, Kinkel, Jager and Zanker (2015) find that firms using industrial robots in their manufacturing processes are less likely to offshore production activities outside Europe. Similarly, Artuc, Christiaensen, and Winkler (2019) show that an increase of one robot per 1,000 workers in the United States—about twice the increase observed between 2004–2014—lowers growth in exports per worker from Mexico to the United States by 6.7 percent. Artuc, Bastos and Rijkers (2019) show that a 10percentage point increase in robot density in developed countries is associated with a 6.1 percentage point increase in their imports from less developed countries and a 11.8 percentage point increase in their exports to these countries, such that net imports from the South within the 2