6 Impact of AI on the Global Economy

Impact of AI on the Global Economy

By: Liza (Daulat Ram College, D.U.)

Equipped with technology everywhere, there’s no way for us, humans, to escape from Artificial Intelligence (AI) anymore. From algorithms to an end-user product, AI has been innovating our lives in quite a subtle manner. The patents of AI products have rapidly increased in recent years.

According to a report by Accenture covering 12 developed countries proclaims that by 2035, AI could double up the annual global economic growth rates. AI will steer this growth up in three major ways. Firstly, it will improve productivity of labour through launching innovative technologies in the market enabling a more efficient workforce. Secondly, it will create a new virtual environment capable of solving problems and self-learning. Thirdly, it will trigger the effect into different sectors by automating just one sector. Overall, it will trickle down the effect to each sector in the economy. Though AI would be making life easier around the world, the impact would be different across different corners. China has vast manufacturing units that will take a huge chunk of time for full automation of technology but the economic gains are going to be unparalleled. The impact of AI would be divergent for different areas of an economy.

Competitiveness in Manufacturing

From technologies like data analytics to cloud computing, AI is going to revolutionise the manufacturing units in upcoming years. A huge chunk of data will be collected from the customer

side and will be processed through AI appliances to give an ultra level user experience in return. Penetrating into the market would be more accessible to probe the problems in a particular sector. It would undoubtedly boost automation, durability of products, seamless detection of problems, timely maintenance and so on. It might also eventuate breakthroughs leading to the creation of new unknown industries in the future.

Effect on Companies

Due to the different level of adoption of various AI tools, there might be a huge gap between the top performers (adopted all the tools) and the non-adopters in the market. There’ll be discrepancies in the cash flows of the both. The front runners would have their cash flow increased by 6 percent while the non-adopters might have a 20 percent decline in their cash flow. Top performers will be relatively ahead of others in possessing the stronger IT base and automation of technological processes.

Impact on labour markets

Talking about the structure of labour, AI would stimulate job creation and job destruction, both. Adopting automation in this area will certainly cut down the lower-paid jobs based on manual work and cognitive skills which can be replaced by AI tools anytime. On the contrary, the automation process would lead to higher-paying jobs which will require minimum to zero manual work automatically leading to job polarisation. Theoretically, more automation would certainly lead to more income growth of an economy but will increase the disparities in the society. Society would end up being richer overall but for multiple communities and individuals, this transition would turn into a nightmare full of inequalities.

Impact on International Trade

The impact of automation and other AI tools will be huge in international trade. Managing the complex and dispersed production units will surely lead to an increase of efficiency of Global Value Chains (GVCs). From increasing the warehouse management to improve the just in-time manufacturing and delivering services, AI will improve the efficiency of this whole system ultimately leading to more economic gains. The German led conception of industry 4.0 which is completely based on sensors, Internet of Things (IoT), cyber physical-systems that connects machines, materials, supplies and consumer will surely pave the path for smart manufacturing. It will enhance the communications for the companies across the supply chain and enable them to evolve the product more according to customer specifications. These are the developments which will further strengthen and extend GVCs. Smart manufacturing emphasising on the connectivity would ultimately open up the GVSs in the specific areas like design, robotics and data analytics adapted to fulfil discrete tasks in the supply chain. However, the same automation may reduce the need of certain extended supply chains that rely on massive low-cost labour.

Nevertheless, of all these impacts whether negative or positive, AI automation may lead to an increase in global economic activity by almost $13 trillion by 2030 creating more jobs in this domain. It will stimulate the increase of about 16% higher cumulative GDP compared to what it is at this date. If successfully delivered, the impact will be huge on the whole global economy exhibiting the pros and cons all over the world.