Page 46 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.83, # 1, 2026, pp. 40-57

development. In addition, "intelligence" and "greening" are advancing simultaneously,
and AI helps to build a more sustainable and efficient new value chain system.

However, the challenges are equally severe. First, the control and governance of
artificial intelligence technologies are highly concentrated among a few developed
economies and major technology firms, posing the risk of widening the global
technological divide if inclusive measures are not adopted (United Nations
Conference on Trade and Development, 2025). Secondly, data security and data
sovereignty issues have made cross-border data flows face more restrictions, and
global trade and cooperation mechanisms are therefore affected. Finally, the
employment structure will also undergo profound adjustments, Recent research
highlights the need for updated regulatory frameworks to address labour market shifts
and employment challenges in contexts of technological change and informal
employment. Lassassi & Hammouda (2025) find that labour regulation reforms are
critical for balancing flexibility and protection in evolving economies, especially
middle-income countries are facing the double squeeze of being "technically
suppressed" by developed countries and "catch-up in cost" by low-income countries.

3 CHANGES IN THE INTERNATIONAL TRADE MODEL
3.1 The Transformation of Trade Globalization to Regionalization and
Localization
Globalization has long driven international trade toward a model of large-scale, cross-
regional production division, primarily relying on cost advantages in different
countries or regions, such as cheap labor and resource endowments. However, in
recent years, the rapid development of artificial intelligence (AI) and robotics has
gradually brought profound changes to this model. The rise in production automation
has not only diminished the comparative advantage of cheap labor but also prompted
more companies to rethink their global supply chain strategies, increasingly favoring
“regionalized” or even “localized” production layouts.

First, automation and robotics significantly raise labor productivity and reduce firms’
reliance on low-cost manual labor in manufacturing, reshaping labor market dynamics and
production location decisions (Firooz, Leduc & Liu, 2025). Over the past few decades,
manufacturing companies have increasingly shifted production to regions with lower labor
costs, such as East and Southeast Asia. However, with the widespread adoption of robotics
and automated factories, production processes are now beginning to return to developed
countries. Take Tesla as an example: this American electric vehicle manufacturer has
established multiple highly automated smart manufacturing plants in domestic locations
like California and Texas. Through automated robotic production lines, Tesla has
significantly boosted production efficiency while effectively reducing labor costs.

46