Differential Investment in an AI-Based Technology and Economic Growth: A Tale of Two Regions

Batabyal, Amitrajeet and Beladi, Hamid (2025): Differential Investment in an AI-Based Technology and Economic Growth: A Tale of Two Regions.

Abstract

In this paper, we analyze a dynamic model in which two stylized regions A and B use an artificial intelligence (AI)-based technology α(t) to produce a knowledge good Q(t). Even though the initial value of the AI-based technology α(0) is identical in both regions, region A saves and hence invests more than region B to make the existing AI-based technology more powerful. We show that this differential investment means that the ratio of the output of the knowledge good in region A to region B or Q_A⁄Q_B is continually rising. In other words, without targeted policy, region A will become a “leading region” that experiences economic growth and innovation ahead of region B which will become a “lagging region” that innovates less and hence tends to grow more slowly.

• Item Type: MPRA Paper
• Language: English
• Keywords: Artificial Intelligence, Dynamics, Economic Growth, Region, Technology
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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