An economist’s view on AI

Michaela Schmöller, writes in „Secular stagnation: A false alarm in the euro area?“ for the Bank of Finland

It is important to note that productivity growth evolves in a two-stage process: the initial invention of new technologies through research and development, subsequently followed by technological diffusion, i.e. the incorporation of these new technologies in the production processes of firms. As a result, even though many important technology advances may have been invented in recent times, they will only exert an effect on output and productivity once firms utilise these technologies in production. Potential productivity gains from technologies that have yet to be widely adopted may be sizable. A central example is the field of artificial intelligence in which future productivity gains may be considerable once AI-related technologies diffuse to the wider economy. (…)

AI may represent — as did the steam engine, the internal combustion engine and personal computers — a general purpose technology, meaning that it is far-reaching, holds the potential for further future improvements and has the capability of spurring other major, complementary innovations over time with the power of drastically boosting productivity. Incorporating AI in production requires substantial changes on the firm-level, including capital stock adjustments, the revision of internal processes and infrastructures, as well as adapting supply and value chains to enable the absorption of these new technologies. Consequently, this initial adjustment related to the incorporation of general purpose technologies in firms‘ production may take time and may initially even be accompanied by a drop in labour productivity before delivering positive productivity gains.

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