AI unbound: digital infrastructure, AI adoption, and firm performance

We study how digital infrastructure relaxes constraints on the diffusion and economic impact of artificial intelligence (AI). Using administrative data and a nationally representative enterprise survey from Turkey (2021-2024), we document significant disparities in AI adoption. Adoption is concentrated among large firms and in regions with high-speed broadband and proximity to data centers, particularly for software-intensive and cloud-based applications. To identify causal effects, we exploit the staggered expansion of Turkey's national natural gas pipeline network, which serves as a conduit for fiber-optic deployment. Because pipeline routing is determined by energy distribution priorities rather than digital demand, it provides plausibly exogenous variation in connectivity. Difference-in-differences estimates show that improved connectivity significantly increases AI adoption, particularly for software-intensive technologies and among small and medium-sized enterprises. Instrumental-variable estimates indicate that infrastructure-driven AI adoption raises labor productivity and export intensity while shifting labor composition toward ICT-related roles. These findings highlight digital infrastructure as a primary determinant of both the pace of AI diffusion and its resulting economic returns.