A new GLO Discussion Paper documents a positive relationship between labor-friendly institutions and investment in industrial robots.
GLO Discussion Paper No. 941, 2021
Institutions, Holdup and Automation – Download PDF
by Presidente, Giorgio
GLO Fellow Giorgio Presidente
Author Abstract: What drives investment in automation technologies? This paper documents a positive relationship between labor-friendly institutions and investment in industrial robots in a sample of developing and advanced economies. Institutions explain a substantial share of cross-country variation in automation. The relationship between institutions and robots is stronger in sunk cost-intensive industries, where producers are vulnerable to holdup. The result suggests that one reason for producers to invest in automation is to thwart rent appropriation by labor. As a consequence, policies aimed at supporting workers’ welfare by increasing their bargaining power might actually reduce their employment opportunities.
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