AI’s Effects on Economic Growth in Aging Society: Induced Innovation and Labor Supplemental Substitution*

Chen Qiulin (陈秋霖)1, Xu Duo (许多)2 and Zhou Yi (周羿)3
1 Institute of Population and Labor Economics (IPLE), Chinese Academy of Social Sciences (CASS), Beijing, China
2 National School of Development (NSD), Peking University
3 Center for Social Research (CSR), Peking University

Abstract: This paper employs industrial robot installations that represent the level of smart manufacturing as the proxy variable of artificial intelligence (AI). Based on crosscountry panel data and China’s provincial panel data, we create a two-stage least square(2SLS) regression model to examine the effect of an aging population on AI applications and AI’s effect on economic growth. In this manner, we aim to test whether AI has a substitutive effect on labor against the backdrop of an aging society and the kind of such a substitutive effect. Our findings suggest that the labor shortage arising from an aging society will prompt an economy to adopt smart manufacturing more broadly, i.e. an aging society is a driver of AI development. Smart manufacturing has a positive effect on local GDP and helps shore up the slowing economy resulting from an aging society. AI is an important tool for coping with the challenges of an aging society. Current AI development is an “induced innovation,” and its substitutive relationship with labor is a “supplemental substitution” rather than “crowding-out substitution.” If these characteristics are properly maintained, AI will contribute more to China’s economy against the backdrop of an aging society.

Keywords: aging society, artificial intelligence, smart manufacturing, substitutive effect

JEL Classification Codes: P23, O33
DOI:1 0.19602/j .chinaeconomist.2019.9.06

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