The advances in intelligent automation enabled by artificial intelligence (AI) could make a wide range of service jobs obsolete at an accelerated speed. These jobs that are threatened by automation include not only routine low-skilled service jobs but also high-skilled, knowledge-intensive service jobs. The service producers in developed economies have been resorting to high-skilled workers in developing economies via service offshoring to take advantage of lower wages. However, intelligent automation could offer the service firms with an even cheaper alternative than service offshoring, threatening employment in the service industries in developing economies.
The objective of this study is to investigate the impact of intelligent automation on international trade in services. We posit that AI-powered intelligent automation reduces the demand for service offshoring, which, in turn, leads to a decline in international trade in services. To test this hypothesis, we use multiple data sets including the U.N. Comtrade trade data over the period from 2000 to 2016, the O*NET data, the World Bank Open Data, and ITU’s ICT Development Index (IDI). We run a series of regression analysis to take a deep dive into the temporal patterns of international trade in services.
We find that the annual growth of international trade in services over the period from 2000 to 2016was 1.67%. However, we observe that the annual growth rate significantly declined from 2014 after healthy growth between 2008 and 2014. However, whereas highly automatable service industries such as financial services, information services, and professional services experienced a negative annual growth rate from 2014, other less automatable services industries did not experience a significant decrease in their annual growth over the same period. Therefore, we could infer that intelligent automation replaced service offshoring of highly automatable services and as a result, international trade in those services declined.
Our further analysis shows that the exports in highly automatable services from developing economies to developed economies witnessed a significant decline since 2014. However, we did not find the same pattern in less automatable service industries. We also see that, over the period from 2000 to 2016, the annual growth in the service exports from countries with a low level of ICT development to countries with a high level of ICT development was significantly lower than that from countries with a high level of ICT development to other countries. This finding is consistent with prior findings that ICT facilitates international trade. However, since 2014, we are witnessing a decline in both the exports and the imports in services in countries with a high level of ICT development. This decline was more significant in highly automatable service industries. We could infer that countries with a high level of ICD development have more advanced intelligent automation technologies, which reduce the demand for service offshoring.
When we limit the scope of our data analysis to 21 APEC member economies only, we still find the same results. While highly automatable service industries experienced a decline in international trade since 2014, less automatable service industries did not experience such a fall. Another interesting finding is that the exports from the developing economies within APEC to the developed countries within APEC decreased more significantly than the exports from the developed to the developing, from the developed to the developed, or from the developing to the developing economies. Finally, it is found that China, India, Korea, and Russia experienced growth in service exports until 2012 but since then witnessed a decline in service exports starting from 2012.
We discuss the implications of these findings and offer policy recommendations. We present five guiding principles for regulations and policies for intelligent automation technologies, ten policy directions, and six specific policy recommendations for APEC member economies. Finally, we discuss how South Korea can serve as a model and contribute to promoting shared prosperity in APEC member economies.