Artificial Intelligence, Firm Growth, and Product Innovation

89 Pages Posted: 27 Aug 2020 Last revised: 11 Nov 2021

See all articles by Tania Babina

Tania Babina

Columbia University - Columbia Business School, Finance

Anastassia Fedyk

University of California, Berkeley - Haas School of Business

Alex Xi He

University of Maryland - Robert H. Smith School of Business

James Hodson

AI for Good; Cognism; Jožef Stefan Institute

Date Written: November 9, 2021

Abstract

We study the use and economic impact of artificial intelligence (AI) technologies among U.S. firms. We propose a new measure of firm-level AI investments, using a unique combination of detailed worker resume and job postings datasets. Our measure reveals a stark increase in AI investments across sectors in the last decade. AI-investing firms see higher growth in sales, employment, and market valuations. We use a novel identification strategy, instrumenting firm-level AI investments with firms' ex-ante exposure, based on alumni networks, to the supply of AI-skilled labor from universities historically strong in AI research. The positive growth effect of AI comes primarily through increased product innovation, reflected in trademarks, product patents, and updates to product portfolios. AI-powered growth concentrates among the ex-ante largest firms, leading to higher industry concentration and reinforcing winner-take-most dynamics. Our results highlight that new technologies can contribute to growth through product innovation.

Keywords: artificial intelligence, technological change, technology adoption, product innovation, human capital, industry concentration

JEL Classification: D2, L1, N6, N8, O3, O14, G32

Suggested Citation

Babina, Tania and Fedyk, Anastassia and He, Alex Xi and Hodson, James, Artificial Intelligence, Firm Growth, and Product Innovation (November 9, 2021). Available at SSRN: https://ssrn.com/abstract=3651052 or http://dx.doi.org/10.2139/ssrn.3651052

Tania Babina (Contact Author)

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

Anastassia Fedyk

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Alex Xi He

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

HOME PAGE: http://www.alexxihe.com/

James Hodson

AI for Good ( email )

800 Arlington Boulevard
El Cerrito, CA 94530
United States
9177449036 (Phone)
9177449036 (Fax)

HOME PAGE: http://ai4good.org

Cognism ( email )

92 Albert Embankment
London, SE17TT
United Kingdom

HOME PAGE: http://cognism.com

Jožef Stefan Institute ( email )

Jamova cesta 39
Ljubljana, 1000
Slovenia

HOME PAGE: http://ailab.ijs.si

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