AI Capital Deepening and Economic Growth: Evidence from a 35-Country Panel (2017–2023)

Yiyang Liu

Co-Presenters: TINGTING LU

College: College of Business and Public Management

Major: BS.ECONOMICS

Faculty Research Mentor: Durmaz, Nazif  

Abstract:

This paper investigates the relationship between AI capital deepening and economic growth using a balanced panel of 35 countries from 2017 to 2023. Embedding AI within a neoclassical growth framework, the analysis estimates baseline, adoption-augmented, and traditional Cobb–Douglas growth models. Results show that AI capital and AI-related labor growth are positively associated with GDP growth, though effects vary by adoption stage and specification. The level of AI adoption is negatively related to growth, suggesting diminishing returns and adjustment frictions in high-maturity economies. Overall, AI contributes to growth in a stage-dependent manner, with stronger gains for earlier-stage adopters than for frontier economies.