Bringing it all back home? Backshoring of manufacturing activities and the adoption of Industry 4.0 technologies

Abstract

We investigate the relationship between backshoring of production activities and investments in digital manufacturing technologies, also known as Industry 4.0. We argue that Industry 4.0 supports backshoring of manufacturing activities: First, because productivity increases by I4.0 technologies can neutralize cost advantages of offshoring locations and make labour arbitrage less appealing. Second, because increased flexibility provided by I4.0 technologies offers an incentive for firms to locate production close to their European customers. The empirical test is based on a large dataset of more than 2,000 manufacturing firms. Backshoring is still a rare event with a share of no more than 4% of all firms. Descriptive statistics as well as regression results indicate a positive correlation between the adoption of I4.0 technologies and companies’ backshoring propensity