Will the AI Revolution Cause a Great Divergence?

IMF Working Papers, September 11, 2020

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Will the AI Revolution Cause a Great Divergence?

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Bibliographic details

• Authors: Cristian Alonso, Andrew Berg, Siddharth Kothari, Chris Papageorgiou, Sidra Rehman
• Published: September 11, 2020
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781513556505.001

Research question and framework

• Considers implications for developing countries of a new wave of technological change that substitutes pervasively for labor.
• Core assumptions:
  • The AI revolution is modeled as an increase in productivity of a distinct type of capital that substitutes closely with labor (referred to as “robots”).
  • The only fundamental difference between the advanced and developing country is the level of TFP.
• Model character: minimalist setup intended to isolate mechanism of robot-driven substitution and its distributional effects across countries.

Key findings

• Improvements in robot productivity drive divergence between advanced and developing countries.
• Advanced countries differentially benefit because they have:
  • Initially higher robot intensity.
  • Endogenously higher wages.
  • Higher stock of complementary traditional capital.
• Capital mobility effects:
  • If capital is internationally mobile, capital is pulled “uphill” toward advanced countries.
  • This can result in a transitional GDP decline in the developing country.
• Extended model (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.

Subjects and keywords (as listed)

• Subject: Labor, Labor share, Robotics, Skilled labor, Technology, Unskilled labor
• Keywords: advanced economy, Automation, developing economy, development, divergence, financial asset, Global, labor share, Labor share, parameter e, production function, robot productivity, robot share, Robotics, robots, Skilled labor, technological change, unskilled labor, Unskilled labor, unskilled-labor-saving technology, WP

Publication and metadata

• Authors: Cristian Alonso, Andrew Berg, Siddharth Kothari, Chris Papageorgiou, Sidra Rehman
• Date: September 11, 2020
• Series: Working Paper No. 2020/184
• Issue: 184
• Volume: 2020
• Pages: 42
• DOI: https://doi.org/10.5089/9781513556505.001
• ISBN: 9781513556505
• ISSN: 1018-5941
• Stock No: WPIEA2020184

IMF Working Paper No. 2020/184 — Will the AI Revolution Cause a Great Divergence?

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