Artificial Intelligence Based Technologies and Economic Growth in a Creative Region

We analyze economic growth in a stylized, high-tech region A with two key features. First, the residents of this region are high-tech because they possess skills. In the language of Richard Florida, these residents comprise the region’s creative class and they possess creative capital. Second, the region is high-tech because it uses an artificial intelligence (AI)-based technology and we model the use of this technology. In this setting, we first derive expressions for three growth metrics. Second, we use these metrics to show that the economy of A converges to a balanced growth path (BGP). Third, we compute the growth rate of output per effective creative capital unit on this BGP. Fourth, we study how heterogeneity in initial conditions influences outcomes on the BGP by introducing a second high-tech region B into the analysis. At time t=0, two key savings rates in A are twice as large as in B. We compute the ratio of the BGP value of income per effective creative capital unit in A to its value in B. Finally, we compute the ratio of the BGP value of skills per effective creative capital unit in A to its value in B.