Will the AI Revolution Cause a Great Divergence?

Author/Editor:

Cristian Alonso ; Andrew Berg ; Siddharth Kothari ; Chris Papageorgiou ; Sidra Rehman

Publication Date:

September 11, 2020

Electronic Access:

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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.

Summary:

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.

Series:

Working Paper No. 20/184

Frequency:

regular

English

Publication Date:

September 11, 2020

ISBN/ISSN:

9781513556505/1018-5941

Stock No:

WPIEA2020184

Format:

Paper

Pages:

42

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