Will the AI revolution cause a great divergence?

Implications of a new wave of technological change that substitutes pervasively for labor are examined with particular focus on developing countries. While the model considered is minimalist by design, the resulting conclusions are powerful: improvements in the productivity of “robots” drive divergence, as advanced countries differentially benefit from their initially higher robot intensity, driven by their endogenously higher wages and stock of complementary traditional capital. Capital—if internationally mobile—is pulled “uphill”, resulting in a transitional GDP decline in the developing country. When robots substitute only for unskilled labor, the terms of trade, and hence GDP, may decline permanently.