Foreign Ownership and Robot Adoption

Countries compete internationally to attract investment from multinational enterprises (MNEs). Policy-makers hope that they bring superior technology to the host country and boost domestic activity. Because technology is often factor-biased, there are distributional effects to consider beyond aggregate welfare. Measuring the technological content of foreign investment is critical when thinking about the distributional consequences of policies towards foreign investment. This paper shows that multinational enterprises spur industrial robot adoption, an increasingly important type of labour-replacing technology. Using detailed firm-level data for the Spanish manufacturing industry, I find that firms switching from domestic to foreign ownership are about 20% more likely to adopt industrial robots than domestic-owned producers. The reason is that industrial robots allow to reduce marginal costs and scale-up production. Their adoption is a key ingredient of new affiliates’ growth, and higher reliance on foreign technology drives this switch. A structural model of firm investment reveals that both robot adoption and foreign ownership increase TFP. However, robot adoption also fosters capital-biased technological change. A model-based decomposition reveals that an economy without robots and MNEs would have 10% lower aggregate TFP but about 30% higher labour share per year, on average. These findings shed new light on the aggregate and distributional consequences of foreign investment