AI-Driven Productivity Gains: Artificial Intelligence and Firm Productivity

Abstract

Artificial intelligence is profoundly influencing various facets of our lives, indicating its potential to significantly impact sustainability. Nevertheless, capturing the productivity gains stemming from artificial intelligence in macro-level data poses challenges, leading to the question of whether artificial intelligence is reminiscent of the “Solow paradox”. This study employs micro-level manufacturing data to investigate the impact of artificial intelligence on firms’ productivity. The study finds that every 1% increase in artificial intelligence penetration can lead to a 14.2% increase in total factor productivity. This conclusion remains robust even after conducting endogeneity analysis and a series of robustness tests. The study identifies that the positive impact of artificial intelligence on productivity is primarily achieved through the value-added enhancement effect, skill-biased enhancement effect, and technology upgrading effect. Furthermore, the study reveals that the effects of artificial intelligence on productivity vary across different property rights and industry concentration contexts. Additionally, the structure of factor endowments within firms can also influence the productivity gains from artificial intelligence. Our study presents compelling evidence demonstrating the role of artificial intelligence in fostering economic sustainability within the framework of Industry 4.0.