The Impact of AI on Global Knowledge Work

Artificial Intelligence (AI) is reshaping offshoring and globalization by automating knowledge work and altering trade patterns. We analyze this transformation in a two-region world where firms structure work hierarchically to use knowledge efficiently: the most knowledgeable individuals specialize in problem-solving, while others perform routine work. Before AI, the Advanced Economy specializes in problem-solving services, while the Emerging Economy focuses on routine knowledge work. We model AI as a technology that converts compute into autonomous “AI agents,†which serve as perfect substitutes for humans with a given level of knowledge. Reflecting the concentration of AI infrastructure in advanced economies, we assume that all compute is located in the Advanced Economy. We show that basic AI reduces the Advanced Economy’s net exports of problem-solving services, potentially reversing pre-AI trade patterns. In contrast, sophisticated AI increases the Advanced Economy’s net exports of problem-solving services, reinforcing existing trade patterns. We also examine the effects of restricting AI autonomy, finding that a global restriction redistributes AI’s benefits toward lower-skilled workers, while a regional restriction—such as banning autonomous AI in the Emerging Economy—does little to benefit lower-skilled workers and harms the most knowledgeable individuals in that region. Our results underscore the need for a coordinated global approach to AI regulation.