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The Economic Implications of AI-Driven Automation: A Dynamic General Equilibrium Analysis

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  • HARIT, ADITYA

Abstract

This paper develops a dynamic general equilibrium (DGE) model to assess the impact of AI-driven automation on labor and capital allocation in an economy. The model considers the endogenous response of firms to task automation and labor substitution, showing how the increasing use of AI affects total output (GDP), wages, and capital returns. By introducing task complementarity and dynamic capital accumulation, the paper explores how automation impacts labor dynamics and capital accumulation. Key results show that while AI enhances productivity and GDP, it can also reduce wages and increase income inequality, with long-run effects that depend on the elasticity of substitution between labor and capital.

Suggested Citation

  • Harit, Aditya, 2024. "The Economic Implications of AI-Driven Automation: A Dynamic General Equilibrium Analysis," MPRA Paper 122244, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:122244
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    References listed on IDEAS

    as
    1. James Bessen, 2018. "AI and Jobs: the role of demand," NBER Working Papers 24235, National Bureau of Economic Research, Inc.
    2. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    3. Melanie Arntz & Terry Gregory & Ulrich Zierahn, 2016. "The Risk of Automation for Jobs in OECD Countries: A Comparative Analysis," OECD Social, Employment and Migration Working Papers 189, OECD Publishing.
    4. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2013. "Cross-Country Differences in Productivity: The Role of Allocation and Selection," American Economic Review, American Economic Association, vol. 103(1), pages 305-334, February.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    AI-driven Automation; Dynamic General Equilibrium; Labor Markets; Capital Accumulation; Income Distribution; Technological Change; Task Automation; Economic Inequality; Labor Demand; Capital Returns; Economic Policy; Neoclassical Growth Theory; Labor-Capital Dynamics.;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • C0 - Mathematical and Quantitative Methods - - General
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • N3 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy
    • P4 - Political Economy and Comparative Economic Systems - - Other Economic Systems
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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