AUTOMATION-INDUCED RESHORING: An Agent-based Model of the German Manufacturing Industry

University essay from Uppsala universitet/Institutionen för geovetenskaper

Abstract: The concept of ‘Industry 4.0’ signalises the rise of innovative manufacturing technologies, including industrial robots. Wider applicability of robotic automation and higher efficiency of production processes shift the profitability analysis of strategic relocation decisions. Despite the technological feasibility, diffusion of technology lowers the profitability threshold for robots. Consequently, competitive labour cost advantages, formerly motivating manufacturing firms to offshore production become less relevant. In fact, robots additionally gain importance in the case of shifted global economic realities, such as stricter environmental regulation on global trade and the convergence of the global wage gap. However, the heterogeneous levels of automation among manufacturing firms have not been taken into account when studying the macroeconomic phenomenon of reshoring. This study adds novelty by offering an agent-based perspective which has allowed insights on how the behaviour of firms, guided by simple economic rules on the micro-level, is dynamically influenced by their complex environment in regard to relocation, decision-making hypotheses. Testing various variables sensitive to initial conditions, increased environmental regulations targeting global trade and upward shifting wage levels in formerly offshore production locations have shown to be driving and inhibiting mechanisms of this socio-technical system. Therefore, the dynamic demonstrates a shift from predominantly cited economic reasoning for relocation strategies towards sustainability aspects, pressingly changing these realities on an environmental and social dimension. The popular debate is driven by increased environmental awareness and the proclaimed fear of robots killing jobs. In view of reshoring shaping the political agenda, interest in the phenomenon has recently been fuelled by the rise of populism and protectionism claiming to “bring jobs back home”.

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