Will the AI Revolution Cause a Great Divergence?

By Cristian Alonso, Andrew Berg, Siddharth Kothari, Chris Papageorgiou, Sidra Rehman

September 11, 2020

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Cristian Alonso, Andrew Berg, Siddharth Kothari, Chris Papageorgiou, and Sidra Rehman. Will the AI Revolution Cause a Great Divergence?, (USA: International Monetary Fund, 2020) accessed December 21, 2024

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.

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 Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/184
Stock No:

WPIEA2020184
ISBN:

9781513556505
ISSN:

1018-5941

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