Industrial Robots, Factor Market Distortion, and Productivity

We find that robot adoption significantly increases firm-level TFP, but factor market distortion hinders the promotion effect of robot adoption on firm-level TFP. Mechanism analysis reveals that the cost-saving and labor productivity improvements brought about by industrial robot application stimulate market entry by new firms and elevate the exit risk for incumbent enterprises. This dynamic intensifies competition, resulting in an enhanced market environment that contributes to firm-level TFP. However, factor market distortions impede the survival of the fittest among firms and stifle the competitive effects of market entry and exit. This ultimately leads to sluggish growth in firm-level TFP.