World Bank Study: Effect of Automation on FDI flows

On January 6, 2020, the World Bank released its study on how FDI flows are affected in the world due to automation. The study concluded that automation will certainly disrupt the flow of capital from rich countries to poor countries. On the other hand, the poor countries can gain from automation if adopted at the right time.

Highlights

The study has used data of FDI (Foreign Direct Investment) and industrial robot usages between 2004 and 2015. It reports that during this period, High Income Countries (HIC) saw the highest FDI outflows. The flow of the FDI were measured in terms of project announcements in middle income countries (MIC) and low-income countries (LIC).

The MIC and LIC witnessed highest FDI inflows during the period of project announcements. Later, it reached a saturation level and began to decline!

Throughout the study the automation processes were measured in terms of number robots employed per 1000 employees.

The study also reports that of all the sectors, automation was maximum in electronic and automobile industries and least in textiles.

Findings

The study found that the FDI flows from a HIC to a LIC reduced as automation increased. For a 10% increase of automation in a HIC, the flow of FDIs into LMIC increased by 5.5%. After a certain threshold the inflows saturated and, in some cases, started to decline as well!

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