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

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  • Beraja, Martin
  • Yang, David Y.
  • Yuchtman, Noam Meir

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

  • Beraja, Martin & Yang, David Y. & Yuchtman, Noam Meir, 2021. "Data-intensive innovation and the State: evidence from AI firms in China," LSE Research Online Documents on Economics 121854, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121854
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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
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General

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