Robots for economic development

Recent evidence suggests that automation technologies entail a trade-off between productivity gains and employment losses for the economies that adopt them. This paper casts doubts on this trade-off in the context of a developing country. It shows significant productivity and employment gains from automation in Indonesian manufacturing during the years 2008-2015, a period of rapid increase in robot imports. Analysis based on manufacturing plant data provides evidence of two plausible reasons for the absence of this trade-off. First, it documents the presence of diminishing productivity returns to robot adoption. As a result, the benefits from automation could be particularly large for countries at early stages of adoption, such as Indonesia. Second, the analysis finds significant positive employment spillovers from automation in downstream plants. Such effects are likely larger in countries such as Indonesia, where the foreign content of manufacturing production is low. Suggestive evidence indicates such results could apply to developing countries more generally.