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AI-enabled Automation, Trade, and the Future of Engineering Services

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Abstract

This paper studies the role of trade for the joint uptake of AI-enabled automation in manufacturing and engineering. It develops an agent-based model (ABM) where the agents are heterogeneous manufacturers and engineering firms. The model features two technology-related business models: engineering as a face-to-face consultancy service and engineering as automated software. Switching to the software technology is costly for both manufacturers and engineers, but the cost declines with the number of firms having made the leap due to network effects. The simulations start with a scenario where all firms are in the consultancy business model and trace out the path of software adoption over time. The software adoption rate follows an S-shaped curve for manufacturers and a boom and bust cycle for engineers. Trade affects the cut-off productivity rate at which manufacturers switch technology, the shape of the adoption rate curve, and the incentives for engineers to develop software. In a two-country model with a high and low-wage country, the low wage country adopts software early and import consultancy services from the high-wage country, a pattern similar to China’s trade and AI development.

Suggested Citation

  • Klügl, Franziska & Kyvik Nordås, Hildegunn, 2021. "AI-enabled Automation, Trade, and the Future of Engineering Services," Working Papers 2021:16, Örebro University, School of Business.
    • Handle: RePEc:hhs:oruesi:2021_016
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    Keywords

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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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