The economies expected to benefit most from AI

A concept of an AI network business connection system on Singapore smart city scape in the background. (Photo: Getty Images)
A concept of an AI network business connection system on Singapore smart city scape in the background. (Photo: Getty Images)

By Tom Hancock

(Bloomberg) — Artificial intelligence will boost economic growth in the US and other advanced economies more than in China and emerging economies, and will add to global competition between Washington and Beijing.

That’s according to a study from Capital Economics, which ranks countries according to their potential to benefit from AI. The US tops the rankings, followed by Singapore, the UK and Switzerland.

China ranks around the middle of the group of 33 countries, with its strong innovation capacity and large investment in AI offset by a strict regulatory approach that can slow the spread of AI technology, according to the report.

“AI is likely to help the US economy sustain its primacy over China in terms of GDP measured at market exchange rates,” Capital Economics’ researchers including Mark Williams, chief Asia economist, wrote in the report. “The AI revolution is another reason to think that expectations of China’s economy streaking ahead of the US will have to be further reined back.”

China will also have to work around US restrictions on exports of microchips used for AI processing. That means the “AI ecosystem in China will develop independently of that in the West,” according to the report.

Emerging Market Gap

Rivalry between China and the US for market leadership in AI may have “positive spillovers” for other countries, the researchers said.

“If the two sides push to have their machine learning tools adopted first to take advantage of network effects, the result could be faster global diffusion of cutting edge technology,” according to the report.

But the most likely outcome is that wider use of AI “will amplify a shift in the global trajectory that’s been underway for a while: a slowdown in the rate at which average emerging market incomes are catching up with developed-world incomes compared to the ‘EM Golden Age’ of the 2000s and early-2010s,” it said.

That echoes a conclusion by economists at Standard Chartered Plc, who highlighted the potential for AI to widen the development gap between advanced economies and emerging markets in research earlier this year. Goldman Sachs Group Inc. analysts said in March that “generative AI” could lead to a dramatic jump in US productivity — of about 1.5 percentage points per year over a decade — and boost global growth substantially.

Capital Economics said AI is likely to hamper growth in India in the near term, partly because it will slow the growth of outsourcing of business processes from developed countries. The “slow demise” of that sector could reduce India’s economic growth by 0.3 to 0.4 percentage points annually over the next decade, it said.

AI will also have large impacts within economies, the report predicts. It’s likely to increase inequality within countries as the benefits accrue more to owners of capital than to most workers.

“We suspect AI will complement high-skilled labor and the returns to capital will be concentrated among a small technology sector, meaning that income inequality rises,” the researchers said.

AI is unlikely to lead to permanently higher unemployment though. There are likely to be new AI-related jobs created, and rising productivity can also lead to an increase in demand for goods and services, according to Capital Economics. But “there is likely to be big dislocation in the short term,” it said.

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