Notes of AI frontier

BY
Siddharth S
BL.BU.MBA2063
Agenda
• Introduction.
• Impact of AI on the world Economy.
• The seven channels for AI impact.
• SEVEN POSSIBLE CHANNELS FOR AI IMPACT.
• MICRO FACTORS TO THE IMPACT OF AI.
• MICRO-TO-MACRO APPROACH
• Econometric model
• Key Takeaways
INTRODUCTION

• The economic impact may emerge gradually and be visible only over time.

• AI may cause disparities in economic levels of countries

• AI has large potential to contribute to global economic activity.

• A key challenge is that adoption of AI could widen gaps between countries,

companies, and worker.

PROGRESS OF AI IN THREE AREAS
• Step-change improvements in computing power and capacity.

• Explosion of data.

• Progress in algorithms.
COUNTRIES TO ADVANCE AI

China Europe Asia

Canada
IMPACT OF AI
ON THE WORLD ECONOMY
• AI has large potential to contribute to global economic activity

• The economic impact may emerge gradually and be visible only over time

• A key challenge is that adoption of AI could widen gaps between countries,

companies, and worker

• How companies and countries choose to embrace AI will likely impact outcomes
Step-change improvements in computing power and capacity.

Explosion of data.

Progress in algorithms.
The seven channels for AI impact
Production channels
• Economic impact of AI was considered on three product dimensions.
• First additional inputs to improve productivity was examined
• Investment in field of AI also saves labor capital but also old capital.
• AI Innovation makes firms more efficient
Continued.
Externality channels

• Use of AI helps in increasing trade and commerce between countries.

• AI helps in economic flow globally.

• Profit made through economic activities can be invested again.

SEVEN POSSIBLE CHANNELS FOR AI IMPACT

Production channels Externality channels

Channel 1: Augmentation
Channel 2: Substitution
Channel 3: Product and service
innovation and extension
Channel 4: Economic gains
• Channel 5: Wealth creation and
reinvestment
• Channel 6: Transition and
implementation costs
• Channel 7: Negative externalities
Technical limitation
• Labeled data.

• Obtaining sufficient data.

• Difficulty in explaining the model.

• Difficulty in generalizing.

• Risk of bias.
MICRO FACTORS TO THE IMPACT OF AI

• The economic impact of AI depends on the rate at which these

technologies are adopted by economic entities and absorbed throughout
their organizations like,
• Digitization
• Competitive pressure
Digitalization Competitive pressure
  MACRO FACTORS  TO THE IMPACT OF AI

These effect the adoption, absorption, and economic impact of AI

Two categories were :
AI-related indicators AI enablers
• AI investment. • Digital absorption.
• AI research activities. • Innovation foundation.
• Potential productivity boost from AI • Human capital.
and automation. • Connectedness.
• Labor-market structure.
AI TO FALL INTO FOUR COUNTRY GROUPS
• Active global leaders.

• Economies with strong comparative strengths.

• Economies with moderate foundations.

• Economies that need to strengthen foundations.

THE GAP BETWEEN LEADING AND LAGGING
COUNTRY GROUPS
• Levels of AI absorption vary significantly between the country groups.
• Economies with higher readiness to benefit from AI may achieve absorption
levels.
• AI divide may emerge between advanced and developing economies.
• AI-enabled growth, especially in some advanced countries such as Sweden,
the United Kingdom, and the United States, may become as large as
consensus growth projections.
PERFORMANCE GAPS BETWEEN FRONT-
RUNNERS AND NONDIFFUSERS
• Front-runners are defined as companies that adopt a broad set of AI technologies.
• The application of technologies across their organizations over the next five to seven years.
• AI-facilitated growth profile is like that of the top quartile of high-growth performing firms.
• These companies tend to adopt AI much faster and more effectively than others.
• Economic output minus AI-related investments and transition costs.
MICRO-TO-MACRO APPROACH

1 2 3 4 5
Integrate relevant Prepare a Simulate gross & Simulate the Model country
data sources. foundational data net GDP impact. impact on labor variances.
set from markets.
econometrics.
Econometric model
• The model denotes that AI is a function of set of key predictors

Pr(Alij)= f (rivalry, digital capabilities, AI complements, expected

profitability…)
Pr is the probability by firm ‘ith’ to adopt cluster ‘j’ of AI technology.
Contd.
Predictors that affect probability are:
• Rivalry: The extent decides to adopt AI technology is affected by its
rival. Imbibing new technology opens up more markets for company.
• Digital capabilities: The capabilities of firm to adopt AI depends on its
Digital power. Huge firms start using AI at more rapid pace and make
rapid development
• AI complementarities
• Expected profitability
Stress testing the economic impact of AI

• Innovation Capacity
1. 10 percent increase in effectiveness ratio was simulated
2. Leads to a 0.9 point increase in GDP

• Global data flows and connectedness

1. 10 percent increase in data flows was simulated
2. 0.2 percent change in GDP on global level
• Investment in AI
1. 10 percent increase in investment was simulated
2. It yielded 0.7 percentage of net GDP
STRESS TESTING THE ECONOMIC IMPACT
OF AI

AI ADOPTION AND INVESTMENT IN AI. INNOVATION GLOBAL DATA TRANSITION COSTS.

ABSORPTION CAPACITY. FLOWS AND
LEVELS. CONNECTEDNESS.
Conclusion
• AI has a positive impact of development of country.

• The effect on development will be slow in beginning which will

increase in end.
• The results of this modeling build upon, and are generally consistent
with, our previous research.

• AI may touch off a competitive race with major implications for firms,
labor markets, and broader economies.