Discussion Paper

No. 2019-48 | September 04, 2019
The macroeconomic consequences of artificial intelligence: a theoretical framework

Abstract

The authors explore the impact of artificial intelligence on the economy by improving neoclassical production function and task-based model. Based on the capital accumulation of artificial intelligence and technological progress, they present a theoretical model that explores the effect of alternative and complementary artificial intelligence on wages, capital prices, labor share, capital share and economic growth. The model shows that artificial intelligence capital lowers the capital prices and increases wages.  In addition, if artificial intelligence and labor force are complementary, artificial intelligence capital has a positive impact on labor share, but if artificial intelligence and labor force can substitute each other, labor share is negatively influenced by artificial intelligence capital. The authors extend the task-based model and find that technological progress increases both wages and labor share by generating new tasks.  In the long run, without consideration of exogenous technology, as the artificial intelligence capital accumulates, per capita output, per capita traditional capital and per capita artificial intelligence capital grow at the same rate, and economic growth finally reaches steady state equilibrium. With exogenous technology considered, artificial intelligence technology improves, and sustained  economic  growth  is achieved.

JEL Classification:

J23, J24

Assessment

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Links

Cite As

Xu Huang, Yan Hu, and Zhiqiang Dong (2019). The macroeconomic consequences of artificial intelligence: a theoretical framework. Economics Discussion Papers, No 2019-48, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2019-48


Comments and Questions


Anonymous - Referee Report 1
November 06, 2019 - 08:38

see attached file


xu Huang - Reply to Referee Report 1
November 13, 2019 - 00:28

Thank you for your useful feedback and comments. We realized that it is not enough to distinguish between complementary artificial intelligence and alternative artificial intelligence. We decided to make a lot of changes to the paper.We believe that artificial intelligence can not only enhance the efficiency of capital production, but ...[more]

... also enhance the productivity of workers, while artificial intelligence has a strong spillover effect on other industries. We are prepared to model from this perspective and to distinguish between complementary artificial intelligence and alternative artificial intelligence.


xu Huang - The new version
November 24, 2019 - 04:36

In the new version, we made a lot of changes. We believe that artificial intelligence is different from previous technological changes, it can improve capital and labor productivity at the same time, and has a strong spillover effect on other industries. It is found that in the case of alternative ...[more]

... artificial intelligence, if the artificial intelligence technology enhances the laborer's effect more than the capital, the labor share increases and the capital share decreases; otherwise, the conclusion is reversed. In the case of complementary artificial intelligence, if the reinforcing effect on the laborer is greater than the capital, the labor share decreases and the capital share rises; conversely, the conclusion is reversed. The wages and capital prices of workers are affected by three effects at the same time, and they need to meet certain conditions before they rise. Further, this paper constructs a two-sector model to examine the impact of the development of artificial intelligence technology on the transformation and upgrading of industrial structure. When the production products of the two sectors are replaced by each other, if the substitution elasticity of sector 1 is greater than that of sector 2, and the net capital enhancement effect of artificial intelligence technology on sector 1 is greater than that of sector 2, the development of artificial intelligence technology leads to capital inflow into capital-intensive enterprises. If the development of artificial intelligence technology has a greater net labor force enhancement effect on sector 1 than sector 2, the development of artificial intelligence technology leads to labor inflow into capital-intensive enterprises. In the case of complementary products in the two sectors, the above conclusions are reversed.