Automation and value-chain embedment: evidence from Chinese manufacturing firms

Abstract

This study aims to explore how the digital technology revolution, brought about by industrial robots, affects the integration of Chinese firms into the global value chain. Utilizing a high-dimensional fixed-effects model, we examine matched data from the database of Chinese industrial firms and customs from 2006 to 2015. We reveal the positive impact of automation on the export domestic value-added of Chinese manufacturing firms, indicating that automation promotes the embedding of firms into the global value chain. Event study methodology finds that the unexpected increase in automation in 2009 significantly boosted firm participation in the value-chain division of labour. The role of automation in driving value-chain embedding is associated with improvements in productivity levels and reductions in relative labour production costs. This impact varies noticeably across different industries, regions, technological levels, and types of value chains, with labour-intensive industries being the most affected. Moreover, we find that automation is driving more Chinese firms to enter and continually integrate into the global value chain, although the current level of industrial automation in China has not yet reached its optimal level.