Working Paper: CEPR ID: DP14293
Authors: Richard Baldwin; Rikard Forslid
Abstract: Globalization and robotics (globotics) are transforming the world economy at an explosive pace. While much of the literature has focused on rich nations, the changes are quite likely to affect developing nations in important ways. The premise of the paper – which should be regarded as a thought-piece – is based on an extreme thought experiment. What does development look like when digitech has rendered manufacturing jobless and many services freely traded? Our conclusion is that the service-led development path may become the norm rather than the exception; think India, not China. Since success in the service sector is based on quite different factors than success in manufacturing, development strategies and mindsets may have to change. This is an optimistic conclusion since it suggests that developing nations can directly export the source of their comparative advantage – low-cost labor – without having first to make goods with that labor.
Keywords: development; digital technology; globotics
JEL Codes: F1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Advancement of digital technologies (digitech) (O33) | Disable traditional manufacturing-led development paths (O14) |
| Advancement of digital technologies (digitech) (O33) | Enable service-led development paths (O14) |
| Advancement of digital technologies (digitech) (O33) | Reduce trade costs for services (F19) |
| Advancement of digital technologies (digitech) (O33) | Minimize effect on labor-cost shares in manufacturing (F16) |
| Advancement of digital technologies (digitech) (O33) | Alter economic landscape of developing nations (F63) |