Fact of the Week: Increasing Industrial Use of AI Improves Purchasing Power and Reduces Regional Inequality

Source: Shiyuan Li and Miao Hao, “Can Artificial Intelligence Reduce regionsal Inequality? Evidence from China,” Munich Personal RePEc Archive (MPRA) Working Papers, October 2021.

Commentary: The widespread implementation of artificial intelligence (AI) poses significant opportunities for productivity growth and improved manufacturing efficiency. While in the short-term, application of AI technology can have mixed effects on the labor market, new research from economists in the Munich Personal RePEc Archive shows that long-term application of AI brings valuable improvements to quality of life.

Using the case study of China, which has been a leading adopter of industrial intelligence and robotization among developing nations, researchers compiled subnational data on AI utilization in the industrial sector, on consumer purchasing power, and on indicators of innovation capacity, such as patenting. Multivariate regression analysis of their panel data showed not only significant positive associations between purchasing power and industrial intelligence from 2005 to 2015, but also significant purchasing power improvements consistent in all aggregated regionss when modeling heterogeneous impacts. Further, industrial intelligence had the strongest effect on improving the purchasing power of residents in Western China, meaning that the application of artificial intelligence has narrowed the inequality of the living standards between regionss. The long-run benefits of industrial intelligence in China shows that AI can be an engine for regionsal economic parity as well as for growth.