Artificial Intelligence, Firm Growth, and Industry Concentration

90 Pages Posted: 27 Aug 2020 Last revised: 23 Nov 2020

See all articles by Tania Babina

Tania Babina

Columbia Business School - Finance and Economics

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 22, 2020

Abstract

Which firms invest in artificial intelligence (AI) technologies, and how do these investments affect individual firms and industries? We provide a comprehensive picture of the use of AI technologies and their impact among US firms over the last decade, using a unique combination of job postings and individual-level employment profiles. We introduce a novel measure of investments in AI technologies based on human capital and document that larger firms with higher sales, markups, and cash holdings tend to invest more in AI. Firms that invest in AI experience faster growth in both sales and employment, which translates into analogous growth at the industry level. The positive effects are concentrated among the ex ante largest firms, leading to a positive correlation between AI investments and an increase in industry concentration. However, the increase in concentration is not accompanied by either increased markups or increased productivity. Instead, firms tend to expand into new product and geographic markets. Our results are robust to instrumenting firm-level AI investments with foreign industry-level AI investments and with local variation in industry-level AI investments, and to controlling for investments in general information technology and robotics. We also document consistent patterns across measures of AI using firms' demand for AI talent (job postings) and actual AI talent (resumes). Overall, our findings support the view that new technologies, such as AI, increase the scale of the most productive firms and contribute to the rise of superstar firms.

Keywords: artificial intelligence, technological change, technology adoption, economic growth, human capital, superstar firms, 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 Industry Concentration (November 22, 2020). Available at SSRN: https://ssrn.com/abstract=3651052 or http://dx.doi.org/10.2139/ssrn.3651052

Tania Babina (Contact Author)

Columbia Business School - Finance and Economics ( 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 )

MD
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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