AI and The Global Economy | Economic Development

AI and The Global Economy
Where are we heading to?

The application of AI in economics is generally linked to productivity growth and transformation, which means radical changes in the inputs and outputs of the global economy in the production of goods and services. It will happen as a result of the so-called “AI revolution” which sooner or later will happen. Countries developing AI capabilities will benefit from it in the future. The US and China will probably benefit most as leaders of this marathon; meanwhile, other countries may remain behind, and they still need to prepare their economies for the adoption of prepared AI solutions. Artificial intelligence (AI) is the demonstration of human intelligence by smart machines. AI is the term used to refer to machines that can think, learn, make sense of what is going on around them, respond accordingly, or simply develop cognitive behavior. The term was coined by John McCarthy in 1956. History often unfolds like a tapestry of complex patterns, where the threads of events and epochs intertwine in rather unpredictable and non-linear ways. Ancient world legends speak of intelligent machines and automatons that could well have been early forms of artificial intelligence. In Greek mythology, the craftsman God Hephaestus was said to have created automated servants and mechanical devices. The idea of AI has captivated human imagination foreshadowing the technological breakthroughs to come.

AI has the potential to improve how people live and work on a global scale. Furthermore, the application of AI in economics is generally linked to productivity, which is the ratio of outputs and inputs used in an economy aimed at creating goods and services. Productivity increases when more output is produced with the same amount of input or the same amount of output is produced with less input. Productive economies create more output with a given amount of input, and this is where AI plays an important role. In addition, productivity is often viewed as the result of per-hour work. It should be noted that productivity in the economy is, first of all, a measure of efficiency and it is viewed as the level of economic growth with a given amount of economic inputs, including technology, labor, and capital. High productivity leads to high wages, low prices, high economic growth, and development, which, in itself, translates to a high standard of living. High productivity and economic development are desirable now as much as they were sought after during the Industrial Revolution. These days, most developed economies grow less than 3%, while most emerging economies grow less than 10%. When productivity falls, it leads to low wages, bringing about an inferior overall standard of living. The global competition for AI supremacy is fierce, with the United States and China leading in the AI marathon. The European Union, while possessing significant strengths in manufacturing and a highly skilled workforce, faces structural challenges that could hinder its ability to keep pace with global leaders. Worldwide, countries and companies are racing to capitalize on the promise of AI as an engine of productivity.

Areas where AI will have an impact include, but are not limited to the following:

Work and leisure: Work should take less time as a result of productivity increases derived from automation. This may lead to increased leisure time and more consumption, which, in itself, translates to higher living standards.

Inflation: Inflation is generally understood as a rise in prices and a fall in purchasing power, which is likely to be reduced as a result of the adoption of AI. This could happen as a result of cost-saving derived from automation. It can have a downward pressure on prices, meaning low inflation or deflation, a decrease in prices, and an increase in purchasing power.

Automation: AI is expected to automate all areas involving tasks that are done by humans, including daily office administration, a large part of legal services, business, and financial sectors with the very start of fintech, coding, sales, and so on. However, there may be areas that will not be heavily impacted, especially those involving negotiations or creativity, construction of buildings, etc.

Growth produced by productivity: Productivity will grow as a result of enhanced automation. The adoption of AI in economies across countries and borders will enhance productivity. It has the potential to become a new playground for competition among countries.

Unemployment: Unemployment among low-skilled workers will increase. However, workers who become unemployed can be reemployed due to reskilling intended for jobs directly or indirectly created by AI.

Overall, AI is a revolutionary technology in terms of its potential; however, AI is still in its early stages, though the term dates back to the middle of the previous century. It is still hard to predict the full impact of AI on the economy, but current trends make it clear that AI has the potential to transform the way people live their everyday lives and become a tremendous source of prosperity. According to some estimates, the global GDP will increase by more than US $1 trillion each year due to AI’s impact on the global economy. The US and China will share more than half of this benefit. In addition, current AI trends will lead to productivity growth as well as the transformation of productivity in the future. The transformation of productivity means radical changes in inputs and outputs used in the economy.