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Differential Investment in an AI-Based Technology and Economic Growth: A Tale of Two Regions

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  • Batabyal, Amitrajeet
  • Beladi, Hamid

Abstract

In this paper, we analyze a dynamic model in which two stylized regions A and B use an artificial intelligence (AI)-based technology α(t) to produce a knowledge good Q(t). Even though the initial value of the AI-based technology α(0) is identical in both regions, region A saves and hence invests more than region B to make the existing AI-based technology more powerful. We show that this differential investment means that the ratio of the output of the knowledge good in region A to region B or Q_A⁄Q_B is continually rising. In other words, without targeted policy, region A will become a “leading region” that experiences economic growth and innovation ahead of region B which will become a “lagging region” that innovates less and hence tends to grow more slowly.

Suggested Citation

  • Batabyal, Amitrajeet & Beladi, Hamid, 2025. "Differential Investment in an AI-Based Technology and Economic Growth: A Tale of Two Regions," MPRA Paper 124730, University Library of Munich, Germany, revised 30 Apr 2025.
    • Handle: RePEc:pra:mprapa:124730
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    References listed on IDEAS

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    1. Lei Wang & Provash Sarker & Kausar Alam & Shahneoaj Sumon, 2021. "Artificial Intelligence and Economic Growth: A Theoretical Framework," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 68(4), pages 421-443, November.
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    6. Ajay Agrawal & Joshua Gans & Avi Goldfarb, 2019. "Economic Policy for Artificial Intelligence," Innovation Policy and the Economy, University of Chicago Press, vol. 19(1), pages 139-159.
    7. Lei Wang & Provash Sarker & Kausar Alam & Shahneoaj Sumon, 2021. "Artificial Intelligence and Economic Growth: A Theoretical Framework," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 68(4), pages 421-443, December.
    8. Ajay Agrawal & Joshua Gans & Avi Goldfarb, 2019. "The Economics of Artificial Intelligence: An Agenda," NBER Books, National Bureau of Economic Research, Inc, number agra-1, June.
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    10. Agrawal, Ajay & Gans, Joshua & Goldfarb, Avi (ed.), 2019. "The Economics of Artificial Intelligence," National Bureau of Economic Research Books, University of Chicago Press, number 9780226613338.
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    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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