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Artificial intelligence plays an important role in our lives and has large potential to contribute to global economic activity. It has been applied to sectors like finance, healthcare, manufacturing, and transport. This article will discuss the impact of AI on growth.
When considering the average level of adoption and absorption, it becomes evident that AI harbors the potential to deliver additional global economic activity. Projections suggest that AI could contribute approximately between $2.6 trillion to $4.4 trillion a year, representing a substantial 16% increase in cumulative GDP compared to when AI was introduced. This amounts to 1.2% additional GDP growth per year and an increase of up to 40% of the impact of all artificial intelligence. On the other hand, 75% of the value generated through AI could imply a fall across customer operations, marketing and sales, software engineering, and R&D (Mckinsey, 2023)
The relationship between AI and economic growth does not follow a linear trajectory but rather exhibits an accelerating growth rate over time. It follows an S-curve pattern (Gozales, J. T., 2023). The adoption of AI technologies into more facets of everyday life experienced a slow start due to substantial costs and investments. These costs were mainly training-related and had to do with the actual deployment and setting up of AI technology. Currently, a tipping point has been reached and consequently the acceleration in adoption rates. Furthermore, countries whose citizens express more optimism about AI, such as China, may be more ready and willing to adopt it into their lives and institutions, accelerating the gains to be made from the AI revolution.
In an endogenous growth model, where the long-run economic growth is determined by forces internal to the economic system, AI drives economic growth by stimulating gains both from the demand and supply side. AI can drive business productivity, helping firms to utilise robots and vehicles so they may automate processes and reduce costs. Furthermore, it is capable of improving the productivity of the existing labour force by equipping them with AI technologies. Nearly every country is preparing for an AI future even though the innovations will not have the same effect everywhere. As per McKinsey’s forecasts, the highest productivity gains will be seen in Hong Kong, Israel, Switzerland, Kuwait, and Japan. Emerging markets like India, Kenya, and Vietnam may see more modest productivity gains on a relative basis, as might be the case with mainland China.
Generative AI
Over the past two decades, AI has permeated various aspects of society, driving advertising algorithms, content recommendations, and social media targeting. However, its influence was predominantly concealed within applications, operating behind the scenes. In contrast, generative AI has emerged prominently, featuring user interfaces that are ubiquitous, proficient, and distinctly recognisable as products of machine-driven intelligence. Unlike previous technological revolutions, the adoption of generative AI has been swift and widespread, with leaders in every capital and commercial hub gaining access to this tool simultaneously. ChatGPT, in particular, has garnered the title of the fastest-adopted technology in history.
While the future trajectory of this technology remains uncertain, generative AI is widely acknowledged as a paradigm-shifting innovation, rather than a passing trend or hype cycle. With its widespread adoption and ongoing innovation, we find ourselves in what can be termed the "inter-AI years." This term reflects a world in which leaders across all sectors are grappling with understanding the implications of generative AI for their respective domains. They are actively exploring ways to leverage its potential opportunities while also seeking strategies to mitigate associated risks.
It’s important to note that simultaneity does not imply parity. Different countries and companies have diverse histories, contexts, capabilities, and risk tolerance when it comes to AI. Despite these differences, leaders can mould the trajectory of an AI future before solid strategies, norms, and standards become deeply integrated within technology.
The AI Powerhouses: The US and China
The US and China are the world’s leading AI competitors, as well as the most important collaborators. Despite heightened geopolitical tension, the quantity of AI research collaborations between the two nations has quadrupled between 2010 and 2021 (Goldman Sachs, 2023). However, the rate of collaboration has slowed in the past years, leaving both countries with periods of competition, collaboration, and economic, technological, and political confrontation.
The United States holds the foremost position as a global AI powerhouse, owing to its renowned universities and leading companies in the field. Collaborating closely with a worldwide network of allies and partners from research to export controls, Washington prioritizes the preservation of its advantages and the acceleration of domestic AI innovation. Industry leaders in America caution against the potential risks should the country falter in maintaining its momentum, expressing concerns about the prospect of lagging behind while other nations, particularly China, make swifter advancements, such as the “Made in China 2025” initiative.
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