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Data-intensive innovation and the State: evidence from AI firms in China

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  • Martin Beraja
  • David Y. Yang
  • Noam Yuchtman

Abstract

Artificial intelligence (AI) innovation is data-intensive. States have historically collected large amounts of data, which is now being used by AI firms. Gathering comprehensive information on firms and government procurement contracts in China's facial recognition AI industry, we first study how government data shapes AI innovation. We find evidence of a precise mechanism: because data is sharable across uses, economies of scope arise. Firms awarded public security AI contracts providing access to more government data produce more software for both government and commercial purposes. In a directed technical change model incorporating this mechanism, we then study the trade-offs presented by states' AI procurement and data pro-vision policies. Surveillance states' demand for AI may incidentally promote growth, but distort innovation, crowd-out resources, and infringe on civil liberties. Government data provision may be justified when economies of scope are strong and citizens' privacy concerns are limited.

Suggested Citation

  • Martin Beraja & David Y. Yang & Noam Yuchtman, 2021. "Data-intensive innovation and the State: evidence from AI firms in China," CEP Discussion Papers dp1755, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1755
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    Cited by:

    1. Naudé, Wim & Dimitri, Nicola, 2021. "Public Procurement and Innovation for Human-Centered Artificial Intelligence," IZA Discussion Papers 14021, Institute of Labor Economics (IZA).
    2. David Karpa & Torben Klarl & Michael Rochlitz, 2021. "Artificial Intelligence, Surveillance, and Big Data," Bremen Papers on Economics & Innovation 2108, University of Bremen, Faculty of Business Studies and Economics.
    3. Tamay Besiroglu & Nicholas Emery-Xu & Neil Thompson, 2022. "Economic impacts of AI-augmented R&D," Papers 2212.08198, arXiv.org, revised Jan 2023.
    4. Igna, Ioana & Venturini, Francesco, 2023. "The determinants of AI innovation across European firms," Research Policy, Elsevier, vol. 52(2).
    5. Christian Peukert & Florian Abeillon & Jérémie Haese & Franziska Kaiser & Alexander Staub, 2024. "Strategic Behavior and AI Training Data," CESifo Working Paper Series 11099, CESifo.
    6. Christian Peukert & Florian Abeillon & J'er'emie Haese & Franziska Kaiser & Alexander Staub, 2024. "Strategic Behavior and AI Training Data," Papers 2404.18445, arXiv.org.
    7. Catherine Tucker, 2023. "The Economics of Privacy: An Agenda," NBER Chapters, in: The Economics of Privacy, National Bureau of Economic Research, Inc.
    8. Freeman, Richard B. & Yang, Buyuan & Zhang, Baitao, 2023. "Data deepening and nonbalanced economic growth," Journal of Macroeconomics, Elsevier, vol. 75(C).
    9. Mary Merva & Adrian Stoian & Simona Costagli, 2021. "Effective information, political structure and economic growth," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 29(4), pages 597-620, October.
    10. Lee, Yong Suk & Kim, Taekyun & Choi, Sukwoong & Kim, Wonjoon, 2022. "When does AI pay off? AI-adoption intensity, complementary investments, and R&D strategy," Technovation, Elsevier, vol. 118(C).
    11. Yan Wang & Ping Han, 2023. "Digital Transformation, Service-Oriented Manufacturing, and Total Factor Productivity: Evidence from A-Share Listed Companies in China," Sustainability, MDPI, vol. 15(13), pages 1-24, June.
    12. Tiago C. Peixoto & Otaviano Canuto & Luke Jordan, 2024. "AI and the Future of Government: Unexpected Effects and Critical Challenges," Policy notes & Policy briefs 2036, Policy Center for the New South.
    13. Chakraborty, Pavel & Chakrabarti, Anindya S. & Chatterjee, Chirantan, 2023. "Cross-border environmental regulation and firm labor demand," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).
    14. Matheus Eduardo Leusin, 2022. "The Development of Al in Multinational Enterprises - Effects upon Technological Trajectories and Innovation Performance," Bremen Papers on Economics & Innovation 2201, University of Bremen, Faculty of Business Studies and Economics.
    15. David Karpa & Torben Klarl & Michael Rochlitz, 2021. "Artificial Intelligence, Surveillance, and Big Data," Papers 2111.00992, arXiv.org.

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    More about this item

    Keywords

    data; innovation; artificial intelligence; China; economies of scope; directed technical change; industrial policy; privacy; surveillance;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • P00 - Political Economy and Comparative Economic Systems - - General - - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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