Chapter 14: Labour Productivity, Growth and Environmental Implications of Artificial Intelligence: A Study on Selected AI-Investing Countries

Artificial intelligence (AI) is a transformative technology that significantly affects the global economy by automating tasks and improving efficiency, leading to substantial gains in labour productivity and economic expansion. However, its impacts are upon environment too, which can be both positive and negative. Against this backdrop, the study explores empirically the pair-wise long-term equilibrium relationships and short-term dynamics between AI and labour productivity, AI and gross domestic product (GDP), and AI and CO₂ emissions over the period from 2012 to 2023, focusing on a panel of the top 20 AI-investing countries. Initially, the analysis using correlation coefficients reveals that most countries show a positive relationship between AI and labour productivity, as well as AI and GDP. Conversely, there was a negative relationship between AI and CO₂ emissions in these countries. For more robust conclusions, the study has employed panel data econometric methods. The Westerlund cointegration test results indicate that long-term stable relationships exist between AI, labour productivity, GDP, and CO₂ emissions in the selected countries. Furthermore, the PMG-ARDL model reveals that AI does not have impacts upon labour productivity, GDP, and CO₂ emissions in the short run. However, in the long run, AI significantly boosts labour productivity and GDP, while not contributing to CO₂ emissions. The negative and significant coefficients of the Error Correction Term (ECT) suggest that short-term deviations are corrected over time, reinforcing the long-term positive relationship. The study suggested fostering collaborations between government research institutions and private companies to accelerate the advancement of AI technologies that optimize energy efficiency and reduce carbon footprints.