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Transformative AI and demand bottlenecks

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  • Phurichai Rungcharoenkitkul

Abstract

Transformative AI promises to accelerate growth through productivity enhancement and automation. Yet automation on such a scale would raise the share of investment in output, potentially starving AI innovation of returns from a shrinking consumer market. We propose an endogenous growth framework to study this interaction, featuring research and entry decisions that propel AI advances but whose costs must be paid for by consumer demand. We identify several scenarios, spanning transformative AI, a demand bottleneck outcome where thinning consumer demand stalls AI progress, and intermediate cases in between. When anchored to evidence, the calibrated model points to the demand bottleneck as a highly plausible scenario, and projects more moderate growth in the coming years relative to recent studies such as Korinek et al. (2026). We draw policy implications, including for the natural rate of interest.

Suggested Citation

  • Phurichai Rungcharoenkitkul, 2026. "Transformative AI and demand bottlenecks," BIS Working Papers 1381, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1381
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    References listed on IDEAS

    as
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    5. Anders Humlum & Emilie Vestergaard, 2025. "Still Waters, Rapid Currents: Early Labor Market Transformation under Generative AI," NBER Working Papers 33777, National Bureau of Economic Research, Inc.
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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