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The Hardware–Software Model: A New Conceptual Framework of Production, R&D, and Growth with AI

Author

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  • Jakub Growiec

    (Department of Quantitative Economics, Warsaw School of Economics, Poland; Rimini Centre for Economic Analysis)

Abstract

The article proposes a new conceptual framework for capturing production, R&D, and economic growth in aggregative economic models which extend their horizon into the digital era. Two key factors of production are considered: hardware, including physical labor, traditional physical capital and programmable hardware, and software, encompassing human cognitive work and pre-programmed software, including artificial intelligence (AI). Hardware and software are complementary in production whereas their constituent components are mutually substitutable. The framework generalizes, among others, the standard model of production with capital and labor, models with capital–skill complementarity and skill-biased technical change, and unified growth theories embracing also the pre-industrial period. It offers a clear conceptual distinction between mechanization and automation of production. It delivers sharp, empirically testable and economically intuitive predictions for long-run growth, the evolution of factor shares, and the direction of technical change.

Suggested Citation

  • Jakub Growiec, 2019. "The Hardware–Software Model: A New Conceptual Framework of Production, R&D, and Growth with AI," Working Paper series 19-18, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:19-18
    as

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    More about this item

    Keywords

    production function; R&D equation; technological progress; complementarity; automation; artificial intelligence;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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