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Will the AI Revolution Cause a Great Divergence?
Author:
Cristian Alonso
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,
Mr. Andrew Berg
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,
Siddharth Kothari
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,
Mr. Chris Papageorgiou
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Sidra Rehman
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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 184
Language:
English
Publication Date:
11 Sep 2020
DOI:
https://doi.org/10.5089/9781513556505.001
ISBN:
9781513556505
ISSN:
1018-5941
Pages:
42
Keywords:
WP; production function; financial asset; Automation; robots; divergence; development; technological change; advanced economy; labor share; unskilled labor; developing economy; robot productivity; robot share; Robotics; Unskilled labor; Labor share; Skilled labor; Global; parameter e; unskilled-labor-saving technology
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper considers the implications for developing countries of a new wave of technological change that substitutes pervasively for labor. It makes simple and plausible assumptions: the AI revolution can be modeled as an increase in productivity of a distinct type of capital that substitutes closely with labor; and the only fundamental difference between the advanced and developing country is the level of TFP. This set-up is minimalist, but the resulting conclusions are powerful: improvements in the productivity of “robots” drive divergence, as advanced countries differentially benefit from their initially higher robot intensity, driven by their endogenously higher wages and stock of complementary traditional capital. In addition, capital—if internationally mobile—is pulled “uphill”, resulting in a transitional GDP decline in the developing country. In an extended model where robots substitute only for unskilled labor, the terms of trade, and hence GDP, may decline permanently for the country relatively well-endowed in unskilled labor.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund