Will the AI Revolution Cause a Great Divergence?

Cristian Alonso, Andrew Berg (), Siddharth Kothari, Chris Papageorgiou () and Sidra Rehman

No 2020/184, IMF Working Papers from International Monetary Fund

Abstract: 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.

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 (search for similar items in EconPapers)
Pages: 42
Date: 2020-09-11
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Citations: View citations in EconPapers (3)

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Journal Article: Will the AI revolution cause a great divergence? (2022)
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