Double whammy? Trade and automation in engineering services

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 ABM features two technology-related business models: engineering as a face-to-face consultancy service and engineering as automated software. The software adoption rate follows an S-shaped curve for manufacturers and a boom and bust cycle for engineers. In the early phase, shortage of engineers constrains AI uptake, while engineers become abundant when AI is fully adopted. Trade affects the cut-off productivity level at which manufacturers switch technology, the shape of the adoption rate curve, and the incentives for engineers to develop software. Bulky transactions and different productivity distributions across countries are drivers of trade in their own right.