Generative AI Catalyst for Growth or Harbinger of Premature

Generative AI: Catalyst for Growth or Harbinger of Premature De-Professionalization?

Introduction

Recent advancements in generative AI have sparked intense debate about its potential impact on economic growth, labor markets, and global trade patterns. Estimates and projections vary widely:

• Goldman Sachs (2023) predicts a 7% increase in global GDP over a decade.
• Acemoglu (2024) provides a more conservative estimate of a 0.9% to 1.1% increase.
• D. Autor (2024) sees generative AI as a unique opportunity to expand the middle class by enabling middle-skill workers to perform higher-stake tasks.
• Frey and Osborne (2024) argue that generative AI will lower barriers to entry in cognitive occupations, increasing competition and potentially driving down wages.

Economic Impacts

The discourse on AI's economic impact predominantly focuses on advanced economies, while its influence on developing countries and global production patterns remains uncertain:

• Korinek and Stiglitz (2021) warn that AI could worsen the terms of trade for developing countries by eroding their labor-cost advantage.
• Optimistic outcomes depend on rapid AI adoption in developing countries, which faces significant barriers like poor infrastructure, education, and regulatory frameworks.

Model Overview

To analyze the impacts, the paper constructs a multi-sector growth model focusing on structural transformation and global production specialization. Key sectors are:

• Agriculture (A)
• Manufacturing (M)
• High-Skill Services (Sh)
• Low-Skill Services (Sl)

Labor is the sole factor of production. The model initially assumes a closed economy, later extending to an open economy context. It explores various extensions, transitioning from exogenous to endogenous growth and incorporating inter-sectoral productivity linkages.

Distinction Between High-Skill and Low-Skill Services

High-skill services include:

• Information and communication technology (ICT) services
• Finance and insurance
• Professional, scientific, and technical services

These sectors are characterized by high levels of skill, income, tradability, and digitalization. Low-skill services include other service sectors that differ significantly in all four dimensions.

Channels of Impact

AI influences growth and structural transformation through three distinct channels:

1. Demand: AI creates new products and shifts consumer preferences, altering income elasticities and substitution elasticities.
2. Supply: AI affects relative prices across sectors, targeting high-skill services, particularly cognitive and creative tasks.
3. International Production Specialization: AI changes comparative advantages among countries, enhancing the comparative advantage of nations that adopt generative AI early.

Key Findings

• Growth Benefits: Widespread cross-sector adoption and paradigm-shifting innovations could drive substantial growth benefits.
• Labor Market Disruptions: Disruptive impacts on labor markets could be profound, potentially shrinking the space for generating well-paid jobs in high-skill services.
• Risk of Premature De-Professionalization: Developing countries may face entrapment as commodity exporters, leading to massive youth underemployment, diminished social mobility, and stagnant living standards.
• Inequality: AI may exacerbate or mitigate economic disparities, depending on how it is adopted and integrated.

Conclusion

The paper emphasizes the need for a nuanced analysis of AI's impacts, highlighting the critical role of rapid and strategic adoption in shaping future economic growth and social outcomes globally.