AI to Boost Economic Growth More in US and Advanced Economies than in China, Study Finds

Artificial intelligence (AI) is set to significantly enhance economic growth in the US and other advanced economies more than in China and emerging markets, according to a study by Capital Economics. This development is expected to heighten global competition between Washington and Beijing.

The study ranks countries based on their potential to benefit from AI, with the US leading the rankings, followed by Singapore, the UK, and Switzerland. China, despite its strong innovation capacity and substantial investment in AI, is ranked in the middle of the 33 countries analyzed. This middling position is attributed to China’s strict regulatory approach, which can hinder the widespread adoption of AI technology.

“AI is likely to help the US economy sustain its primacy over China in terms of GDP measured at market exchange rates,” wrote Capital Economics researchers, including Chief Asia Economist Mark Williams. They argue that the AI revolution is a factor that could temper expectations of China’s economy surpassing that of the US.

China also faces challenges from US restrictions on microchip exports essential for AI processing, necessitating the development of an independent AI ecosystem distinct from that in the West.

The rivalry between China and the US for AI market leadership could have “positive spillovers” for other countries. If both nations push for the rapid adoption of their AI tools to capitalize on network effects, it could accelerate the global dissemination of advanced technology.

However, the widespread use of AI is likely to exacerbate a trend already in progress: the deceleration of income convergence between emerging markets and developed economies compared to the “EM Golden Age” of the 2000s and early 2010s. This view aligns with conclusions from economists at Standard Chartered Plc and Goldman Sachs Group Inc., who have noted the potential for AI to widen the development gap.

Capital Economics predicts that AI will temporarily hinder growth in India, as it will slow the expansion of business process outsourcing from developed countries. This sector’s decline could reduce India’s economic growth by 0.3 to 0.4 percentage points annually over the next decade.

Within economies, AI is likely to increase inequality, with the benefits predominantly accruing to capital owners rather than workers. “We suspect AI will complement high-skilled labor, and the returns to capital will be concentrated among a small technology sector, meaning that income inequality rises,” the researchers stated.

While AI is not expected to result in permanently higher unemployment, it will likely create new AI-related jobs and boost demand for goods and services through rising productivity. However, the report cautions that significant short-term disruptions are anticipated.

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