Transformative AI and demand bottlenecks

Phurichai Rungcharoenkitkul

No 1381, BIS Working Papers from Bank for International Settlements

Abstract: Transformative AI promises to accelerate growth through productivity enhancement and automation. Yet automation on such a scale would raise the share of investment in output, potentially starving AI innovation of returns from a shrinking consumer market. We propose an endogenous growth framework to study this interaction, featuring research and entry decisions that propel AI advances but whose costs must be paid for by consumer demand. We identify several scenarios, spanning transformative AI, a demand bottleneck outcome where thinning consumer demand stalls AI progress, and intermediate cases in between. When anchored to evidence, the calibrated model points to the demand bottleneck as a highly plausible scenario, and projects more moderate growth in the coming years relative to recent studies such as Korinek et al. (2026). We draw policy implications, including for the natural rate of interest.

Keywords: artificial intelligence; automation; natural rate of interest; demand-pull innovation; market size; endogenous growth; demand bottlenecks (search for similar items in EconPapers)
JEL-codes: E22 E43 E52 O31 O33 O41 (search for similar items in EconPapers)
Date: 2026-10
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bis.org/publications/working-paper-138 ... mand-bottlenecks.pdf Full PDF document (application/pdf)
https://www.bis.org/publications/working-paper-138 ... d-demand-bottlenecks (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1381

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().