World Bank study Are Robots Shifting Foreign Direct Investments? reveals that industrial robotization in high-income source countries significantly boosts outward Foreign Direct Investment (FDI), rather than triggering the expected reshoring of production. This challenges the common assumption that automation would lead to large-scale reshoring by reducing the need for overseas labour.
Using data from 65 countries between 2003 and 2021, the study finds that a 1% increase in robot adoption in a source-country industry is associated with a 0.8% rise in outward FDI flows from that industry. The effect is strongest in manufacturing sectors where firms rely on global production networks and cross-border specialisation.
The increase is mainly concentrated in vertical FDI, also called efficiency-seeking investment, where companies invest abroad to improve production efficiency rather than simply access new consumer markets. The report finds that around 70% of the increase comes from a higher number of new projects, while another 22% comes from higher capital investment per project, showing that automation is expanding scale rather than shrinking it.
Importantly, the study finds no major decline in labour intensity, meaning the number of jobs created per project remains broadly stable. This suggests that robots and foreign labour are acting as complements rather than substitutes in modern manufacturing systems. Firms use automation to improve productivity at home while continuing to rely on overseas labour and supply chains for global production.
The report also finds that robot adoption in destination countries does not significantly improve their ability to attract new FDI. Instead, traditional factors such as institutional quality, market size, and policy stability remain the strongest drivers of investment decisions. This means automation alone does not make a country more competitive unless broader governance conditions are supportive.
Key Empirical and Policy Benchmarks
Outward FDI Elasticity: A 1% rise in source-country robot stock correlates with a 0.8% rise in industry-specific FDI outflows.
Project Dynamics: 70% of the growth comes from an increase in the number of projects; 22% from higher capital intensity.
Complementarity: Labor intensity remains stable, indicating that robots do not replace foreign workers but rather scale up total production.
Vertical vs. Horizontal FDI: The effect is exclusive to efficiency-seeking manufacturing; robotization does not significantly impact market-seeking service FDI.
Destination Neutrality: Increased robot use in destination countries does not statistically increase their ability to attract new greenfield FDI.
Service Sector Erosion: In destination countries, automation may slightly discourage efficiency-seeking service FDI by reducing the need for human-led support roles.
What is "Efficiency-Seeking (Vertical) FDI"?
Efficiency-seeking or Vertical FDI occurs when a firm relocates parts of its production process to different countries to take advantage of specific local strengths, such as lower costs or specialized labor. Unlike "Market-seeking (Horizontal) FDI," which aims to sell products in the local destination market, vertical FDI is about building a global assembly line. The World Bank 2026 report shows that robots make firms so efficient and competitive at home that they need to set up more of these "global factories" to handle the increased scale of production.
Policy Relevance
Debunks Reshoring Anxiety: For Indian policymakers, the report provides evidence that automation in the West (US/EU) is unlikely to pull factories back home; instead, it may create more high-capital projects for India to capture.
Shifts Focus to Capital Intensity: As FDI becomes more "robot-driven," India needs to pivot its PLI (Production Linked Incentive) schemes to support capital-intensive infrastructure rather than just low-skill assembly.
Prioritizes Institutional Quality: Since automation in destination countries doesn't automatically attract FDI, India must double down on Ease of Doing Business and political stability to remain competitive.
Links Automation with Skills: The "complementarity" between robots and labor suggests that India should focus on upskilling its workforce to work alongside automated systems, rather than competing against them on cost alone.
Incentivizes Component Manufacturing: Vertical FDI thrives on "intermediate goods." India’s policy of building Chemical and Electronics Parks aligns with the report’s finding that automated firms seek specialized production nodes.
Follow The Full Report Here: World Bank Document: Are Robots Shifting Foreign Direct Investments?