Will the AI Revolution Cause a Great Divergence?

43 Pages Posted: 30 Oct 2020

See all articles by Cristian Alonso

Cristian Alonso

Princeton University, Department of Economics, Students

Andrew Berg

International Monetary Fund (IMF) - Developing Country Studies Division

Siddharth Kothari

International Monetary Fund (IMF)

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department

Sidra Rehman

International Monetary Fund (IMF)

Date Written: September 1, 2020

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: Robotics, Unskilled labor, Labor, Labor share, Skilled labor, WP, tag0, graphic tag0, mi, production function, financial asset

JEL Classification: E23, O11, O30, O41, O33, J44, J01, J30

Suggested Citation

Alonso, Cristian and Berg, Andrew and Kothari, Siddharth and Papageorgiou, Chris and Rehman, Sidra, Will the AI Revolution Cause a Great Divergence? (September 1, 2020). IMF Working Paper No. 20/184, Available at SSRN: https://ssrn.com/abstract=3721209

Cristian Alonso (Contact Author)

Princeton University, Department of Economics, Students ( email )

Princeton, NJ
United States

Andrew Berg

International Monetary Fund (IMF) - Developing Country Studies Division ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8843 (Phone)
202-589-8843 (Fax)

Siddharth Kothari

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Chris Papageorgiou

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Sidra Rehman

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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