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The implications of automation for economic growth when investment decisions are irreversible

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  • Antony, Jürgen
  • Klarl, Torben

Abstract

This paper discusses automation embedded into a standard growth model without exogenous growth when investment decisions for physical and automation capital are irreversible. The imposed nonnegativity constraints on physical and automation capital induces an imbalance effect between the growth rate of output and the fraction between physical and automation capital. The paper shows that this imbalance effect leads (i) to transitional dynamics off the steady state while (ii) retaining perpetual growth of the AK style in the steady state without exogenous technological progress. We also show that the resulting transition path does not have to be on the saddle path of the system without the nonnegativity constraints.

Suggested Citation

  • Antony, Jürgen & Klarl, Torben, 2020. "The implications of automation for economic growth when investment decisions are irreversible," Economics Letters, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519303805
    DOI: 10.1016/j.econlet.2019.108757
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    1. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    2. Lankisch, Clemens & Prettner, Klaus & Prskawetz, Alexia, 2019. "How can robots affect wage inequality?," Economic Modelling, Elsevier, vol. 81(C), pages 161-169.
    3. Ladron-de-Guevara, Antonio & Ortigueira, Salvador & Santos, Manuel S., 1997. "Equilibrium dynamics in two-sector models of endogenous growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 115-143, January.
    4. Prettner, Klaus, 2019. "A Note On The Implications Of Automation For Economic Growth And The Labor Share," Macroeconomic Dynamics, Cambridge University Press, vol. 23(3), pages 1294-1301, April.
    5. Casey B. Mulligan & Xavier Sala-i-Martin, 1991. "A Note on the Time-Elimination Method For Solving Recursive Dynamic Economic Models," NBER Technical Working Papers 0116, National Bureau of Economic Research, Inc.
    6. Prettner Klaus & Geiger Niels & Schwarzer Johannes A., 2018. "Die Auswirkungen der Automatisierung auf Wachstum, Beschäftigung und Ungleichheit," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 19(2), pages 59-77, July.
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    Citations

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    Cited by:

    1. David E. Bloom & Klaus Prettner & Jamel Saadaoui & Mario Veruete, 2023. "Artificial intelligence and the skill premium," Department of Economics Working Papers wuwp353, Vienna University of Economics and Business, Department of Economics.
    2. Ana Lucia Abeliansky & Klaus Prettner, 2021. "Population Growth and Automation Density: Theory and CrossCountry Evidence," VID Working Papers 2102, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
    3. Prettner, Klaus, 2023. "Stagnant wages in the face of rising labor productivity: The potential role of industrial robots," Finance Research Letters, Elsevier, vol. 58(PD).
    4. Sasaki, Hiroaki, 2023. "Growth with automation capital and declining population," Economics Letters, Elsevier, vol. 222(C).
    5. Abeliansky, Ana Lucia & Prettner, Klaus, 2023. "Automation and population growth: Theory and cross-country evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 345-358.
    6. Hayakawa, Kazunobu & Mukunoki, Hiroshi, 2022. "How does additive manufacturing change trade?: evidence from trade in sound recordings," IDE Discussion Papers 848, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    7. Klarl, Torben, 2022. "Fragile robots, economic growth and convergence," Economic Modelling, Elsevier, vol. 112(C).
    8. Torben Klarl, 2022. "Fragile Robots, Economic Growth and Convergence," Bremen Papers on Economics & Innovation 2202, University of Bremen, Faculty of Business Studies and Economics.

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    More about this item

    Keywords

    Automation; Perpetual economic growth; Irreversibility of investment decisions;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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