metadata: authors: 0: author: Freund,Caroline
1: author: Mulabdic,Alen
2: author: Ruta,Michele
count: World
docna: 0: docna: Is 3D Printing a Threat to Global Trade ?
            The Trade Effects You Didn't Hear About
docty: Policy Research Working Paper
abstracts: cdata!: In the mid-2000s, the production of
            hearing aids shifted almost entirely to 3D printing. Using
            difference-in-differences and synthetic control methods,
            this paper examines the effects of this shift on trade
            flows. The analysis finds that trade increased roughly 60
            percent following the introduction of 3D printing. Revealed
            comparative advantage was reinforced, with exports growing
            most rapidly for middle- and high-income countries. The
            analysis also finds that developing countries increased
            their imports of hearing aids as a result of the innovation,
            benefitting consumers. As a robustness check, the paper
            examines 35 products that are partially 3D printed and finds
            positive and significant effects on trade. The results
            counter widespread views that 3D printing will shorten
            supply chains and reduce trade.
repnme: repnme: Is 3D Printing a Threat to Global Trade ?
            The Trade Effects You Didn't Hear About
display_title: Is 3D Printing a Threat to Global
            Trade The Trade Effects You Didn't Hear About
listing_relative_url: /research/2019/09/31433347/3d-printing-threat-global-trade-trade-effects-didnt-hear
publishtoextweb_dt: 2019-09-25T00:00:00Z
no_of_pages: 43
author_keys: 0: author_key: 641206
1: author_key: 1259324
2: author_key: 1245806
model_extractions: Policy Research Working Paper 9024 World Development Report 2020 _Background Paper_ Is 3D Printing a Threat to Global Trade? The Trade Effects You Didn’t Hear About _Caroline Freund Alen Mulabdic Michele Ruta_ Development Economics Macroeconomics, Trade and Investment Global Practice September 2019
Policy Research Working Paper 9024

# **Abstract**

In the mid-2000s, the production of hearing aids shifted almost entirely to 3D printing. Using difference-in-differences and synthetic control methods, this paper examines the effects of this shift on trade flows. The analysis finds that trade increased roughly 60 percent following the introduction of 3D printing. Revealed comparative advantage was reinforced, with exports growing most rapidly for middle- and high-income countries. The analysis also finds that developing countries increased their imports of hearing aids as a result of the innovation, benefitting consumers. As a robustness check, the paper examines 35 products that are partially 3D printed and finds positive and significant effects on trade. The results counter widespread views that 3D printing will shorten supply chains and reduce trade.

This paper is a product of the Macroeconomics, Trade and Investment Global Practice. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at cfreund@worldbank.org, amulabdic@worldbank.org, and mruta@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **Is 3D Printing a Threat to Global Trade? The Trade Effects You Didn’t Hear About**<sup>**†**</sup>

**Caroline Freund, Alen Mulabdic, Michele Ruta**<sup>∗</sup>

World Bank _Keywords_ : 3D Printing, Trade, Comparative Advantage, Developing Countries _JEL Codes_ : F14, O33 † We are grateful to Simeon Djankov, Nuno Limão, Aaditya Mattoo, Denis Medvedev, Erik Van der Marel, and seminar participants at the World Bank and the workshop on “Europe 4.0: Sharing the New Economy” for helpful comments and suggestions. Errors are our responsibility only.

>  World Bank, 1818 H Street, Washington DC, USA. Caroline Freund, Email: cfreund@worldbank.org; Alen Mulabdic, Email: <u>amulabdic@worldbank.org; Michele Ruta, Email: mruta@worldbank.org.</u> The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.
3D PRINTING AND TRADE 2

# **1. Introduction**

Will 3D printing disrupt world trade? The new technology has been accompanied by predictions of a future where goods will be printed locally, global supply chains will be shortened, and international trade will be dramatically reduced. Firms (and perhaps even consumers) will be able to create a solid three-dimensional object from a digital file and will no longer need to import printable goods and components. One study finds that as much as 40 percent of trade could be eliminated by 2040.<sup>1</sup> In contrast, many earlier improvements in production processes that have reduced production costs and/or improved quality have boosted international trade. The industrial revolution is perhaps the best example, where a transformation in technology and management practices brought huge productivity gains, output growth, and expanding trade. The impact of 3D printing technology on world trade is therefore an empirical question.

Early evidence suggests that firms (and countries) will continue to specialize and 3D printing will stimulate trade growth. While 3D printing allows product customization, it does not beat traditional manufacturing technologies for bulk production of simple items. Even for the specialized products where it is most effective, it is not leading to decentralized production. One example comes from dentistry, where custom products are in high demand but are being manufactured and exported by high-tech firms. Consider Renishaw, a British engineering company, that makes dental crowns and bridges from digital scans of patients’ teeth. The printers run for 8-10 hours to make custom teeth from cobalt-chrome alloy powder, which are then exported. Dentists are not installing the machines to print teeth locally, rather the parts are shipped to dental labs in Europe, where a layer of porcelain is added before the teeth are shipped to dentists.<sup>2</sup> With 3D printing, the production process changed but the supply chain remains intact.

In addition to teeth, the innovative technology is also being used for several other goods, from running shoes to prosthetic limbs. The good where 3D printing is most common is hearing aids. Nearly 100 percent of all hearing aids consumed in the world are produced using 3D printing.<sup>3</sup> 3D printers transformed the hearing aid industry in less than 500 days in the mid-2000s, which makes this product a unique natural experiment to assess the trade effects of this technology. In particular, we use the example of hearing aids to examine the effects of 3D printing on international trade and to study how trade patterns have changed as production technologies shifted. Beyond this specific example, we also investigate trade in other goods where the use of 3D printing is expanding.

The main result is that 3D printing leads to an increase in world trade. We examine the data in two ways, first using a standard difference-in-difference technique and comparing the growth in hearing aid trade to other similar products. Second, we use synthetic controls. The results show that the development of 3D printing led to an increase in trade of 58 percent over nearly a decade, relative to the baseline. A dynamic extension of our model shows that the impact

> 1 - - - ING Report (Leering, 2017) https://www.ingwb.com/media/2088633/3d <u>printing report 031017.pdf</u>

> 2 “A printed smile,” The Economist, 28-Apr-2016.https://www.economist.com/science-and- <u>technology/2016/04/28/a-printed-smile</u> 3 See Banker (2013).
3D PRINTING AND TRADE 3 on trade follows the large expansion of 3D printing in the hearing aid industry in 2007. Our results also indicate that comparative advantage is strengthened and the countries that appear to benefit the most from the introduction of the new technology are advanced and middle-income economies. When we study the impact on imports, results show that there is a stronger effect on developing countries, particularly low-income countries, pointing to welfare gains on the consumption side for these economies.

The intuition for the results is that 3D printing led to a reduction in the cost of production. Demand rose and trade expanded. There is no evidence that 3D printing shifted production closer to consumers and displaced trade. One reason is that hearing aids are light products which makes them relatively cheap to transport internationally -we come back to this point below. A second reason is because printing hearing aids in high volumes requires a large investment in technology and machinery and the presence of highly specialized inputs and services. The countries that were early innovators, Denmark, Switzerland and Singapore, remain the main export platforms. Some middle-income economies such as China, Mexico and Vietnam have also been able to substantially increase their market shares between 1995 and 2015. As a result, exports did not become more concentrated in the top producing countries following the introduction of 3D printing.

While these results are specific to hearing aids, the insights may be more general. We also examine 35 other products that are increasingly being 3D printed and find similar patterns. These budding 3D products have also experienced faster trade growth than otherwise similar goods. In contrast to the results for hearing aids, there is some evidence of disruption in comparative advantage which indicates that there might be differences across products that deserve further investigations as more data become available. We also investigate the extent to which the weight of 3D printable products affects our main result. Interestingly, we find that the positive effect of 3D printing on trade decreases with product weight and could even reverse for bulky products. These results suggest that while the technology appears to boost trade on average, it may be used to produce goods closer to consumers for products with high transport costs.<sup>4</sup> This paper contributes to the literature on how new technologies affect international trade. Despite the large debate in the specialized press,<sup>5</sup> to our knowledge this is the first paper that empirically investigates the impact of 3D printing on trade. Goldfarb and Tucker (2017) have a recent survey of the literature on digital economics, which does not review any paper on 3D printing.

The paper is organized as follows. The next section describes 3D printing in hearing aids. Section 3 reports results for the difference-in-difference methodology. Section 4 reports results using synthetic controls. Section 5 explores other products that are being 3D printed. And Section 6 concludes.

> 4 Ideally, we would want to test the extent to which a second feature of hearing aids -the presence of relevant economies of scale- matters to explain the impact of 3D printing on trade. The presumption is that the production of products that are less subject to economies of scale can be more easily fragmented, leading to less trade. Unfortunately, differently from product weights, data on scale elasticities are not available at the level of disaggregation needed for this analysis.

> 5 See the next section for a discussion on hearing aids as an example.
3D PRINTING AND TRADE 4

# **2. 3D printing in hearing aids**

The hearing aid industry is unique in its virtually complete and rapid switch from traditional manufacturing to 3D printing. According to one observer, not one company that stuck to traditional manufacturing methods survived (d’Aveni, 2014). Despite attempts in the late 1980s and early 1990s, the 3D printing technology did not mature until the early 2000s. Importantly, the more efficient technology was adopted in fewer than 500 days (e.g., see Figure 1 for 3D printing adoption for the largest firm),<sup>6</sup> reducing production steps from nine to three: scanning, modeling, and printing (Sharma, 2013).

Three major inventions marked a turning point. First, in 2001, two Danish graduate students developed a prototype of a 3D scanner, which was used to scan hearing aid shells (Sandström, 2016). Widex – one of the three Danish hearing aid manufacturers – immediately signed an agreement for the development of a scanner. In addition to the scanner, the students also developed the software and founded 3Shape, a company that now controls 90 percent of the market for scanners and software for 3D printing. Second, a German firm, Dreve Materials, launched in 2002 a biocompatible material suitable for 3D printing processes of hearing aids. Finally, in 2005 EnvisionTEC, a producer of 3D printers, sold its first Selective Modulation printer to Phonak, a producer of hearing aids. After a period of trial and error, the new printer finally allowed hearing aid manufactures to produce shells similar in terms of color and material to the traditional ones. As the technology changed, there was a wave of industry consolidation. In 2006, the Phonak Group became the largest producer, after acquiring GN ReSound and the adoption of the technology spread rapidly.<sup>7</sup>

> 6 Other companies switched to 3D printing during the same period. For instance, GN ReSound explored the technology in 2002 and by 2008 it transitioned 90 percent of its production to 3D printing (Sandström, 2016).

> 7 ““Big-6′′ to Become “Big-5′′ as R&D Costs Drive Consolidation,” The Hearing Review, 1-Oct-2006. <u>http://www.hearingreview.com/2006/10/big-6-to-become-big-5-as-rd-costs-drive-consolidation/</u>
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3D PRINTING AND TRADE 8

# **3. Differences-in-Differences**

In this section, we study the impact of 3D printing on international trade flows using a differences-in-differences method. We ask the data four main related questions: what the impact of the new technology is on hearing aids’ (i) average exports; (ii) comparative advantage; (iii) exports of countries at different level of developments; and (iv) imports.

In the simplest case, 3D printing would reduce trade if countries shifted from importing hearing aids to printing them. However, it could also affect comparative advantage, leading to a change in trade patterns, but no end to trade. In a standard Heckscher-Ohlin framework, the introduction of 3D printing technology would reduce the labor intensity of production. As a result, exports would shift to more capital abundant countries. The overall reshuffling of exports would also depend on the presence of economies of scale. Finally, the new technology reduced production costs and increased product quality, suggesting there should be greater demand, more production, and potentially more trade.

We begin by identifying the effect of 3D printing on trade by comparing hearing-aid exports before and after 2007 – the year production technology shifted – to exports of other products. The underlying assumption is that, controlling for other determinants of trade, trade in hearing aids would have moved in parallel to other products in the absence of the 3D printing technology. Thus, any divergence in hearing aids trade after 2007 is attributable to 3D printing.

To formally investigate the relationship between 3D printing and trade, we estimate the following equation: where XiktP is country i’s log of exports of HS 6-digit product k within category product P in year t.<sup>10</sup> Ikt(Hearing Aid 2007) is an indicator variable which takes value 1 for HS code 902140 “hearing aid” from year 2007 onward – the year in which the technology became widely used in the production of hearing aids (see Section 2). γik and δit are country-product and country-year fixed effects, respectively. Country-product dummies capture the effect of time-invariant characteristics that determine the level of exports, including secular productivity and endowment differences that can determine the specialization trade patterns. While country-year fixed effects account for country specific shocks common to all products, including country-specific macroeconomic conditions.

> 10 We use product level bilateral trade data from WITS (UN Comtrade) reported at the 6-digit level in the HS 1988/92 classification for the period 1995-2016 .  As common in the literature, we drop countries with population less than 5 million. Additionally, we keep only countries for which the World Bank provides information on the income level (see Table 9 or <u>https://datahelpdesk.worldbank.org/knowledgebase/articles/378834-how-does-the-world-bank-classifycountries).  The available data cover 117 countries and 330 products that are either classified as high-tech</u> (see Table 5) or in HS chapter 90.
3D PRINTING AND TRADE 9 The coefficient on the indicator variable, β, captures differences in changes in export of hearing aids that are due to the introduction of the 3D printing technology. If the technology allows for the disaggregation of production, with printing performed geographically close to consumers (as it is implicitly assumed in recent reports -see the Introduction), the coefficient should be negative. On the other hand, if 3D printing, similarly to other technologies, expands quality or lowers prices, trade should expand, and the coefficient would be positive.

The econometric analysis shows that the average impact of 3D printing on trade in hearing aids is positive and statistically significant (Table 1). The results in the first column of Table 1 indicate that as hearing aids became 3D printed trade flows increased by up to 78 percent. The results are robust to using products that are high-tech and/or under HS chapter 90 in the control group. In our preferred specification, we compare trade in hearing aids to other high-tech products in HS chapter 90 – optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus. These are products with similar R&D and technology intensity that are likely to be subject to similar demand and supply shocks as hearing aids. In this specification, we find that 3D printing increases trade by 58 percent (from column 4, exp(0.456)-1). This effect could be interpreted as a lower bound, as there is evidence of 3D printing being used to some extent for the production of other high-tech products within chapter 90.<sup>11</sup> _Table 1: Effects of 3D printing on exports in hearing aids_

|Sector control<br>VARIABLES|(1)<br>HS Ch. 90 or<br>High-tech<br>log(exports)|(2)<br>HS Ch. 90<br>log(exports)|(3)<br>High-tech<br>log(exports)|(4)<br>HS Ch. 90 and<br>High-tech<br>log(exports)|
|---|---|---|---|---|
|(Hearing Aid 2007-)|0.580***<br>(0.158)|0.550***<br>(0.157)|0.561***<br>(0.159)|0.456***<br>(0.157)|
|Observations|476,248|234,932|360,007|118,678|
|R-squared|0.847|0.859|0.844|0.862|
|Period|1995-2016|1995-2016|1995-2016|1995-2016|
|Country-Year FE|YES|YES|YES|YES|
|Country-Product FE|YES|YES|YES|YES|
|% Zeroes|.44|.40|.44|.37|

Note: Robust standard errors, clustered at the country-product level, are in parentheses. Countries with population over 5mln.

*** p<0.01, ** p<0.05, * p<0.1

11 For instance, orthopedic appliances and other artificial parts of the body.
3D PRINTING AND TRADE 10 As a second step, we test for dynamic effects and perform a robustness check on the treatment year, we estimate the following equation: where the coefficients on the interactions between Hearing Aid and the _year_ dummy variables, βyear, capture the yearly difference between trade in hearing aid and other products with respect to the difference in 1995 the excluded category due to the collinearity with country-product, γik, fixed effects.

The results when we estimate equation (2) are presented in Figure 5 which shows the coefficients of the interaction term for different years. We find that trade in hearing aids diverged markedly from non-3D products after 2007 – i.e., when the technology started to be adopted – irrespectively of the control group. There is also some evidence of trade increasing around 2004, when the technology was already deployed in the production of hearing aid shells, although only for a fraction of production (see Figure 1). Trade in hearing aids progressively diverged in years subsequent to 2007 (with peaks in 2011 and 2016), consistently with the view that the technology allowed to reduce costs and improve quality leading to increasing sales over time.
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3D PRINTING AND TRADE 12 _Table 2: Effects of 3D printing on RCA in hearing aids_

|Sector control|(1)<br>HS Ch. 90 or<br>High-tech|(2)<br>HS Ch. 90|(3)<br>High-tech|(4)<br>HS Ch. 90 and<br>High-tech|(5)<br>HS Ch. 90 or<br>High-tech|(6)<br>HS Ch. 90|(7)<br>High-tech|(8)<br>HS Ch. 90 and<br>High-tech|
|---|---|---|---|---|---|---|---|---|
|VARIABLES|log(exports)|log(exports)|log(exports)|log(exports)|log(exports)|log(exports)|log(exports)|log(exports)|
|(Hearing Aid 2007-)|0.562***|0.532***|0.545***|0.442***|||||
||(0.171)|(0.170)|(0.172)|(0.170)|||||
|(Hearing Aid 2007-)*(Dummy RCA 1995-2000 > 1)|0.230|0.225|0.213|0.167|||||
||(0.227)|(0.233)|(0.235)|(0.265)|||||
|(Hearing Aid 2007-)*(Dummy Low RCA 1995-2000 < 1)|||||0.551*|0.476*|0.544*|0.377|
||||||(0.289)|(0.283)|(0.291)|(0.277)|
|(Hearing Aid 2007-)*(Dummy High RCA 1995-2000 < 1)|||||0.566***|0.551***|0.545***|0.464**|
||||||(0.207)|(0.206)|(0.208)|(0.208)|
|(Hearing Aid 2007-)*(Dummy Low RCA 1995-2000 > 1)|||||0.981***|0.964***|0.952***|0.851***|
||||||(0.149)|(0.150)|(0.161)|(0.190)|
|(Hearing Aid 2007-)*(Dummy High RCA 1995-2000 > 1)|||||0.508***|0.448***|0.467***|0.248|
||||||(0.153)|(0.168)|(0.180)|(0.263)|
|Observations|476,248|234,932|360,007|118,678|476,248|234,932|360,007|118,678|
|R-squared|0.847|0.859|0.844|0.862|0.847|0.859|0.844|0.862|
|Sum of coefficients|.792***|.757***|.758***|.609***|2.606***|2.439***|2.508***|1.939***|
|Period|1995-2016|1995-2016|1995-2016|1995-2016|1995-2016|1995-2016|1995-2016|1995-2016|
|Country-Year FE|YES|YES|YES|YES|YES|YES|YES|YES|
|Country-Product FE|YES|YES|YES|YES|YES|YES|YES|YES|
|% Zeroes|.44|.4|.44|.37|.44|.4|.44|.37|

Note: Robust standard errors, clustered at the country-product level, are in parentheses. Countries with population over 5mln. *** p<0.01, ** p<0.05, * p<0.1
3D PRINTING AND TRADE 13 In Table 3 we investigate the impact of 3D printing on countries at various stages of development. Results in columns 1 to 4 suggest that 3D printing had a similar impact on trade of developing and developed countries. However, when we use a finer disaggregation for developing countries, we find heterogenous effects. In columns 5-8 we find that 3D printing particularly benefitted exports of upper middle-income economies and high-income countries, while it had a negative impact on exports from low-income economies.<sup>12</sup> In sum, we find that only emerging and advanced economies appear to have benefited from the new technology, consistent with the new technology being relatively less labor intensive.

> 12 See Appendix Table 8.
3D PRINTING AND TRADE 14 _Table 3: Effects of 3D printing on exports in hearing aids for countries at different levels of development_

||(1)|(2)|(3)|(4)|(5)|(6)|(7)|(8)|
|---|---|---|---|---|---|---|---|---|
|Sector control|HS Ch. 90 or<br>High-tech|HS Ch. 90|High-tech|HS Ch. 90 and<br>High-tech|HS Ch. 90 or<br>High-tech|HS Ch. 90|High-tech|HS Ch. 90 and<br>High-tech|
|VARIABLES|log(exports)|log(exports)|log(exports)|log(exports)|log(exports)|log(exports)|log(exports)|log(exports)|
|(Hearing Aid 2007-)|0.584***|0.583***|0.560***|0.501***|||||
||(0.190)|(0.193)|(0.190)|(0.193)|||||
|(Hearing Aid 2007-)*(Dummy Developing)|-0.007|-0.061|0.002|-0.085|||||
||(0.310)|(0.309)|(0.311)|(0.311)|||||
|(Hearing Aid 2007-)*(Dummy Low income)|||||-0.744|-0.870*|-0.780|-1.111**|
||||||(0.481)|(0.477)|(0.478)|(0.462)|
|(Hearing Aid 2007-)*(Dummy Lower middle income)|||||0.503|0.501|0.488|0.435|
||||||(0.453)|(0.438)|(0.464)|(0.457)|
|(Hearing Aid 2007-)*(Dummy Upper middle income)|||||0.929***|0.843***|0.919***|0.728***|
||||||(0.290)|(0.294)|(0.285)|(0.279)|
|(Hearing Aid 2007-)*(Dummy High income)|||||0.584***|0.583***|0.560***|0.501***|
||||||(0.190)|(0.193)|(0.190)|(0.193)|
|Observations|476,248|234,932|360,007|118,678|476,248|234,932|360,007|118,678|
|R-squared|0.847|0.859|0.844|0.862|0.847|0.859|0.844|0.862|
|Sum of coefficients|.577**|.522**|.562**|.416*|1.272*|1.057|1.188|.553|
|Period|1995-2016|1995-2016|1995-2016|1995-2016|1995-2016|1995-2016|1995-2016|1995-2016|
|Country-Year FE|YES|YES|YES|YES|YES|YES|YES|YES|
|Country-Product FE|YES|YES|YES|YES|YES|YES|YES|YES|
|% Zeroes|.44|.4|.44|.37|.44|.4|.44|.37|

Note: Robust standard errors, clustered at the country-product level, are in parentheses. Countries with population over 5mln. *** p<0.01, ** p<0.05, * p<0.1
15 3D PRINTING AND TRADE Finally, we estimate equation (1) on the log of imports. This specification allows to understand which consumers are benefitting from the technology by expanding their demand for hearing aids. In addition, a focus on imports has two advantages. First, the share of zero trade flows, especially for the hearing aid industry, is lower, as a higher number of countries consume hearing aids than produces them.<sup>13</sup> Second, this specification serves as an additional robustness test in terms of the 3D printing treatment. Given that a small number of exporting countries dominate the hearing aid industry, effects may not be widespread, or a few outliers could drive results. Imports are likely to be affected to a greater extent across a wider number of countries.

Overall the estimates on the impact of hearing aids on imports are qualitatively similar to those found for exports, however there are some quantitative differences. Results in column 1 of Table 4 suggest that 3D printing increases imports by 104 percent while the impact on exports, for the specification that uses high-tech products within chapter 90, suggests an increase by around 58 percent. We find that countries with a large revealed disadvantage (i.e., _Dummy Low RCA 19952000 < 1_ equal to one), countries unlikely to produce hearing aids domestically, import disproportionately more after the introduction of 3D printing. Column 4 shows that there is stronger impact on developing countries’ imports. Column 5 shows that the impact of 3D printing on imports is uniform across developing countries with a marginally stronger impact on low income economies. These findings suggest that the 3D innovation made hearing aids more available to developing country residents with hearing loss.

In summary, this section documents a strongly positive impact of 3D printing on trade using differences-in-differences techniques. The results show that the technology allowed producers, especially in upper middle- and high-income countries, to increase their export competitiveness. As a result, this increase in competitiveness benefited consumers in developing countries that increased their imports of hearing aids.

13 Indeed, the last row of Table 4 shows that the share of zeroes, 28 percent, is smaller than the one for exports which ranges between 37 and 44 percent.
16 3D PRINTING AND TRADE _Table 4: Effects of 3D printing on imports_

|Sector control|(1)<br>HS Ch. 90 and<br>High-tech|(2)<br>HS Ch. 90 and<br>High-tech|(3)<br>HS Ch. 90 and<br>High-tech|(4)<br>HS Ch. 90 and<br>High-tech|(5)<br>HS Ch. 90 and<br>High-tech|
|---|---|---|---|---|---|
|VARIABLES|log(imports)|log(imports)|log(imports)|log(imports)|log(imports)|
|(Hearing Aid 2007-)|0.715***|0.715***||0.493***||
||(0.068)|(0.072)||(0.084)||
|(Hearing Aid 2007-)*(Dummy RCA 1995-2000 > 1)||-0.004||||
|||(0.164)||||
|(Hearing Aid 2007-)*(Dummy Developing)||||0.351***<br>(0.124)||
|(Hearing Aid 2007-)*(Dummy Low RCA 1995-2000 < 1)|||0.989***|||
||||(0.117)|||
|(Hearing Aid 2007-)*(Dummy High RCA 1995-2000 < 1)|||0.545***<br>(0.082)|||
|(Hearing Aid 2007-)*(Dummy Low RCA 1995-2000 > 1)|||0.724***<br>(0.117)|||
|(Hearing Aid 2007-)*(Dummy High RCA 1995-2000 > 1)|||0.694**<br>(0.319)|||
|(Hearing Aid 2007-)*(Dummy Low income)|||||0.891***<br>(0.171)|
|(Hearing Aid 2007-)*(Dummy Lower middle income)|||||0.812***<br>(0.139)|
|(Hearing Aid 2007-)*(Dummy Upper middle income)|||||0.860***<br>(0.150)|
|(Hearing Aid 2007-)*(Dummy High income)|||||0.493***<br>(0.084)|
|Observations|137,376|137,376|137,376|137,376|137,376|
|R-squared|0.907|0.907|0.907|0.907|0.907|
|Sum coefficients|.715***|.711***|2.951***|.843***|3.056***|
|Period|1995-2016|1995-2016|1995-2016|1995-2016|1995-2016|
|Country-Year FE|YES|YES|YES|YES|YES|
|Country-Product FE|YES|YES|YES|YES|YES|
|% Zeroes|.28|.28|.28|.28|.28|

Note: Robust standard errors, clustered at the country-product level, are in parentheses. Countries with population over 5mln. *** p<0.01, ** p<0.05, * p<0.1
3D PRINTING AND TRADE 17

# **4. Synthetic Control Method (SCM)**

In this section we complement the differences-in-differences analysis from the previous section with a Synthetic Control Method (SCM) first developed by Abadie and Gardeazabal (2003) and refined by Abadie et al. (2010, 2013). This method offers two main advantages over a differences-in-differences approach. First, the SCM allows for a data-driven selection process of suitable control groups. Second, the framework allows for the effect of confounding factors on the outcome variable to vary over time. The idea behind the method is to obtain for each treated unit a synthetic control by using a weighted average of untreated units to match the observable characteristics and pretreatment outcome of the treated unit. Thus, the method should be less subject to the omitted variables bias typical of a differences-in-differences estimation.

Synthetic control methods have been mostly used in the context of a single treated unit. For instance, Abadie and Gardeazabal (2003) study the economic impact of terrorism in the Basque region.<sup>14</sup> Billmeier and Nannicini (2013) are an early exception, they assess the impact of several episodes of economic liberalization on real GDP per capita, but do not estimate average effects. More recently, the method has been extended to multiple treatments. Cavallo et al. (2013) examine the short and long run consequences of natural disasters. While Acemoglu et al. (2016) estimate the value of political connections for all firms trading on the NYSE and Nasdaq.

The paper contributes to the SCM literature by determining the statistical significance of the treatment effects using the permutation method developed by Cavallo et al. (2013) and limiting it to 5,000 randomly drawn placebo treatment groups as in Acemoglu et al. (2016). Following Cavallo et al. (2013), we define the significance level ( _p-value_ ) at each post treatment period _l_ as where α̅l is the weighted average of the treatment effects of the treated units with weights being the inverse of the pre-treatment root mean squared error. As each treated unit may use different set of controls, we assign to each of these controls a random treatment in the same period as the treated unit to obtain a placebo effect. For each treated unit we then select a random placebo effect and aggregate all the selected effects using the inverse of the pre-treatment root mean squared error as weights and repeat the procedure 5,000 times.

To implement the SCM analysis we need to select the pool of possible controls to use and identify the characteristics to be matched. For each country, a synthetic control is constructed using the country’s exports of high-tech products within HS chapter 90. In terms of characteristics, we use lagged outcome variables: 1995, 2000, and 2005. For instance, we use a combination of German exports of high-tech sectors within chapter 90 to construct a synthetic control for exports of hearing-aids for Germany. This allows us to control for country specific time-varying shocks such as financial crises and the unemployment rate.

> 14 See also Caselli (2017) who uses synthetic control methods to evaluate the impact of an exchange rate intervention on inflation in the Czech Republic.
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3D PRINTING AND TRADE 21 As in the previous section, we also evaluate the impact of 3D printing on imports. Figure 9 presents the results on differences between hearing-aid imports and the respective synthetic controls. The 3D printing technology is estimated to have increased imports by 77 percent in 2016 (Panel A). The increase in imports is mostly driven by an expansion in demand by countries with a relative disadvantage in hearing aids (Panel B). Both results are strongly statistically significant (Figure 10, Panels A and B). Consistently with the difference-in-difference approach, the new technology also appears to have benefited consumers in developing countries. Developed countries’ imports increased by 53 percent in 2015 and 71 percent in 2016, although this effect is not consistently statistically significant, while the increase in developing countries was 116 percent in 2015 and 93 percent in 2016 and always statistically significant (Figure 9 Panel C and Figure 10 Panel C).
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3D PRINTING AND TRADE 24

# **5. Other 3D printable sectors**

This section expands the differences-in-differences analysis to 3D printable sectors. Arvis et al. (2017) identify 4-digit SITC sub-groups deemed to be 3D printable in the short-medium term or that are currently 3D printable based on reviews of industry reports, websites, news articles, and interviews with industry participants (see Table 6 for the full list). Analyzing the trade impact of the new technology on these sectors allows to investigate the extent to which the results of previous sections are general and not specific to hearing aids. But there are two main limitations to using this list. First, 4-digit SITC sub-groups include a large number of products with different characteristics. For instance, within sub-group SITC 6659, “articles made of glass, n.e.s.”, there are 144 products ranging from laboratory glassware to coral imitation of glass. As a result, within each sub-group there can be products that are 3D printable and products that are not. Second, there is no clear distinction between printed and printable, or any indicator on the diffusion within each sub-group. This complicates the identification of the impact of 3D printing on trade as we assume that each sector is affected by the technology in the same way and also in the same year.

As a first exercise, Table 4 presents the results on the impact of the diffusion of 3D printing on 3D printable sectors. As in the previous section, we assume that the technology became available in 2007. Column 1 confirms the positive impact of the technology on trade that was established in the previous sections. However, we find that the coefficient is sizably smaller than the ones reported in Table 1. The difference could be due to the fact that 3D printing has not yet been adopted by most of the printable industries. In other words, we are including in the treatment group units that should be used as controls which in turn biases the effects downwards.

Differently from the hearing aids example, we find that the technology decreased trade for countries that used to have a comparative advantage in 3D printable products. Similarly to the previous analysis, we find a positive impact of the new technology on exports of advance and emerging economies. Taken together, these results are suggestive of 3D printing leading to a reshuffling in comparative advantage from labor abundant / developing economies to capital abundant / advanced economies.<sup>17</sup> But the impact on trade growth suggests that concentration forces may be still relevant for this broader set of products. Finally, this evidence should not be interpreted as conclusive given the quality of the data used in this exercise and the uncertainty around the timing and extent of the adoption of the technology.

> 17 For instance, Adidas makes most of its shoes in Asia but its 3D printed shoes, Futurecraft 4D, come from a plant in the Bavarian town of Ansbach, Germany, or Carbon’s Silicon Valley office. <u>https://www.forbes.com/sites/andriacheng/2018/05/22/with-adidas-3d-printing-may-finally-see-its-massretail-potential/#562ca1454a60</u>
25 3D PRINTING AND TRADE _Table 5: 3D printable products pooled_

|VARIABLES|(1)<br>log(exports)|(2)<br>log(exports)|(3)<br>log(exports)|(4)<br>log(exports)|(5)<br>log(exports)|
|---|---|---|---|---|---|
|(3D printable 2007-)|0.059***|0.119***||0.095***||
||(0.019)|(0.021)||(0.023)||
|(3D printable 2007-)*(Dummy RCA 1995-2000 > 1)||-0.390***<br>(0.046)||||
|(3D printable 2007-)*(Dummy Developing)||||-0.051<br>(0.034)||
|(3D printable 2007-)*(Dummy Low RCA 1995-2000 < 1)|||0.236***<br>(0.039)|||
|(3D printable 2007-)*(Dummy High RCA 1995-2000 < 1)|||0.051**<br>(0.023)|||
|(3D printable 2007-)*(Dummy Low RCA 1995-2000 > 1)|||-0.194***<br>(0.053)|||
|(3D printable 2007-)*(Dummy High RCA 1995-2000 > 1)|||-0.416***<br>(0.067)|||
|(3D printable 2007-)*(Dummy Low income)|||||-0.081<br>(0.062)|
|(3D printable 2007-)*(Dummy Lower middle income)|||||0.018<br>(0.040)|
|(3D printable 2007-)*(Dummy Upper middle income)|||||0.143***<br>(0.038)|
|(3D printable 2007-)*(Dummy High income)|||||0.095***<br>(0.023)|
|Observations|1,945,693|1,945,693|1,945,693|1,945,693|1,945,693|
|R-squared|0.869|0.869|0.869|0.869|0.869|
|Sumofcoefficients|.059***|-.271***|-.323***|.044*|.175**|
|Period|1995-2016|1995-2016|1995-2016|1995-2016|1995-2016|
|Country-Year FE|YES|YES|YES|YES|YES|
|Country-Product FE|YES|YES|YES|YES|YES|
|% Zeroes|.27|.27|.27|.27|.27|

Note: Robust standard errors, clustered at the country-product level, are in parentheses. Countries with population over 5mln. *** p<0.01, ** p<0.05, * p<0.1
26 3D PRINTING AND TRADE As a second exercise, we exploit product level characteristics to identify heterogenous effects of 3D printing on trade. This allows to study the extent to which the impact of 3D printing on trade in the previous sections depends on the product characteristics of hearing aids. Specifically, we investigate if product weight plays a role in the decision of localizing production closer to consumers versus concentrating the production in one location. Intuitively, for products like hearing aids that are light and hence have lower transport costs, incentives to localize production closer to consumer should be lower than for heavier products. Ideally, we would also like to identify how the impact of 3D printing on trade varies based on the interplay between economies of scale intensity and product weight. Unfortunately, data on scale elasticities is available only for a limited number of 2-digit sectors (see Bartelme, Costinot, Donaldson and Rodriguez-Clare, 2018).

To formally test for differential impacts of 3D printing on trade in heavy and light goods, we augment equation (1) by an interaction term between Ikt(3Dprinting 2007) and product k’s log of weight. The weight of product k is defined as the median unit weight of HS 6-digit products corresponding to a 4-digit SITC product.<sup>18</sup> The unit weight measure for printable sectors varies from 52 grams for spectacles (SITC 8842) to 98 kilograms for machine tools for deburring (SITC 7316). Before describing the results from this specification, it is important to stress some caveats. First there may be an aggregation bias, if some products in a category are light and others are heavy. In addition, the effects could be misidentified if weight is a determinant of technology adoption. Moreover, it is possible that the technology could affect product weight as it may allow to design new structures that are lighter and use less material.

With these caveats in mind, Figure 11 presents the results on the impact of 3D printing on exports and imports as a function of product weight. Panel A shows that the impact of 3D printing on exports decreases with product weight. Exports of lighter products such as spectacles increased the most after the technology became available while the impact becomes insignificant for heavier product such as aircraft and spacecraft parts. Results in Panel B suggest that the availability of 3D printing led to a statistically significant decrease in import of heavy printable products, mainly machineries. The results suggest that 3D printing is more likely to lead to fragmented production for products that are light and, hence, cheaper to trade. On the other hand, there is some evidence that the technology could be used to produce goods closer to consumers for products subject to high transport costs.

18 We calculate unit weights with HS 6-digit data, instead of SITC 4-digit, as the information is provided on a more detailed degree of disaggregation.
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