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11. The tension between exploding AI investment costs and slow productivity growth

Author:
Bertin Martens
Publication Date:
10-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This working paper explores the tension between rapidly increasing artificial intelligence investment costs and the slower pace of productivity growth, raising concerns about a potential ‘economic winter’ for AI. AI has shown significant technological progress, particularly with machine learning and generative AI models like ChatGPT. Investment in AI has surged. But there are concerns about whether these investments will yield proportional returns. Training costs for a single frontier AI model are increasing exponentially, , from $1,000 in 2017 to nearly $200 million in 2024, driven by constant returns to scale in AI model training data, compute capacity and model complexity. Costs could reach billions of dollars by 2030, despite a rapid fall in unit costs per computing operation over the same period. Global AI infrastructure costs in hardware could exceed $1 trillion by the mid-2030s. Amortizing these huge fixed costs requires business models that can be rolled out across a very large user market. Estimates about AI’s contribution to productivity growth vary, from a modest 0.5 percent per year to a very optimistic 10 percent per year. Research shows that productivity usually catches up slowly compared to costs. Without significant productivity gains, the current investment cost trajectory is unsustainable. We estimate that 3 percent annual productivity growth across advanced economies would be required to sustain AI model cost extrapolations to 2030. In an optimistic scenario, productivity increases would result in accelerated economic growth.
Topic:
Digital Economy, Economic Growth, Microeconomics, Artificial Intelligence, and Productivity
Political Geography:
Global Focus

12. The state of the UK economy 2024

Author:
UK in a Changing Europe
Publication Date:
01-2024
Content Type:
Special Report
Institution:
UK in a Changing Europe, King's College London
Abstract:
The state of the UK economy is always an important matter, but it is all the more so in what looks likely to be an election year. This UK in a Changing Europe report takes stock of the UK economy in order to assess how it can break from the current economic and political ‘doom loop’. The report provides a constructive framework to address the need for a longer-term, joined up approach in policy areas, ranging from education to immigration, to public services and artificial intelligence. It shows that there is no single silver bullet for the problems facing the UK economy, however a number of themes have emerged. The UK has long been plagued by short-termism and political instability which needs to be addressed. Edited by Senior Fellow Professor Jonathan Portes, it brings together leading UK academics on the economy from universities across the UK, the Migration Observatory, the Institute for Fiscal Studies and other research institutions.
Topic:
Education, Industrial Policy, Migration, Economy, Tax Systems, Macroeconomics, Trade, Artificial Intelligence, Housing, Labor Market, Public Service, Productivity, and Net Zero
Political Geography:
United Kingdom and Europe

13. Valuing Longer, Healthier Lives: Assessing the Productivity of Health Spending in South Korea

Author:
Karen Eggleston
Publication Date:
03-2023
Content Type:
Special Report
Institution:
East-West Center
Abstract:
This research studies the link between medical spending and health outcomes in South Korea, providing evidence on the productivity of medical spending over recent decades. The author advocates for the Korean government to develop a “satellite account for health” to complement national income and product accounts. Current measures do not account for changing quality nor give providers any incentive for cost-effective substitution between forms of treatment for a given condition. By leveraging existing strengths of Korea’s National Health Insurance and health outcome data, Korea can develop an accurate measure of medical productivity and a more accurate measure of overall economic productivity, while becoming a global pioneer of “health satellite accounts” for overall populations. Such a productivity metric built on condition-specific net value can help Korea increase the “bang for the buck” from medical spending, mitigate wasteful spending, and promote high-value innovations for longer, healthier lives.
Topic:
Health, Public Spending, and Productivity
Political Geography:
Asia and South Korea

14. Structural transformation and sources of growth in Turkey

Author:
Ahmet Ihsan Kaya and Cumhur Çiçekçi
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper provides a comprehensive analysis of the supply and demand side of structural transformation in Turkey. Using the GGDC/UNU-WIDER Economic Transformation Database, we find that labour productivity improvements explain more than half of economic growth in the period 1980–2021. This is mainly thanks to within-sector productivity improvements, while the contribution of structural change declines over time. Time-series regression analysis shows that structural change is driven by per capita income growth and financial openness but is halted by trade integration. Furthermore, decomposition analysis from input– output tables demonstrates that domestic final demand has been the main source of output growth since 1980 and the contribution of export expansion has increased over time, but import dependency has persisted. The intermediate goods industry stands out as the locomotive sector in the economy throughout the entire period according to forward and backward linkage analysis.
Topic:
Labor Issues, Economic Growth, Productivity, Income, Supply and Demand, and Structural Transformation
Political Geography:
Turkey and Middle East

15. Structural change and the National Initiative for Human Development in Morocco

Author:
Al-mouksit Akim and Wissal Sahel
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper aims to revisit the pace and patterns of structural change in Morocco with a renewed perspective focusing on subnational trends to document the macro patterns. In that perspective, we first build a within-country sectoral longitudinal dataset covering employment and value added (VA) that expands the international databases mostly used in the literature. Based on this novel dataset, our results shed light on the different contributions of subnational units (regions) to labour productivity growth and, subsequently, structural change. Taking advantage of this novel dataset, we use an instrumental variable (IV) strategy to estimate the impact of the National Initiative for Human Development (NIHD) programme on labour productivity growth and both of its components: the between (structural change) and the within components. We find that the NIHD programme positively affects productivity growth overall, mainly through structural change. The results are driven by urban areas and the participation of local actors such as associations or cooperatives in the management of NIHD projects.
Topic:
Labor Issues, Economy, Human Development, Productivity, and Structural Transformation
Political Geography:
North Africa and Morocco

16. Estimating the productivity gap between organised and unorganised small-scale units in India’s manufacturing sector

Author:
Amit Basole, Dimple Chopde, and Paaritosh Nath
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Centre for Sustainable Employment, Azim Premji University
Abstract:
Small manufacturing firms are considered to be engines of growth and job creation. While most research on small firms focuses on formal sector units, in India informal sector units far outnumber the formal. This is true even for manufacturing units employing 5 to 49 workers, which constitute only 5% of all unorganised units, but in absolute numbers are nine times more numerous than organised units in the same size class. Such firms have the potential to contribute to structural transformation but their capacities vis-a-vis formal firms are not well understood. To address this, we create a unit-level dataset combining Annual Survey of Industries data for organised (formal) units with the National Sample Survey data on unorganised (informal) units. We also discuss problems involved in this exercise and some ways to deal with them. We find that matching organised and unorganised units on observable characteristics reduces the labour productivity differences between them to around 25 percent. We discuss some policy implications of our results.
Topic:
Employment, Manufacturing, Productivity, and Informal Economy
Political Geography:
South Asia and India

17. Africa’s Businesswomen – Underfunded or Underperforming?

Author:
Charles Ackah, Holger Görg, Aoife Hanley, and Cecília Hornok
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
While the recent success of Africa’s ‘Lionesses’ – successful female entrepreneurs - is internationally celebrated, less is known about how liquidity can fuel the success of the ‘Lionesses’ and other businesswomen. Using information from a panel of over 800 male- and female-owned businesses in Ghana (ISSER-IGC survey), we capture a measure of underfunding, in addition to data on supplier credit, equity and other finance sources. Our regressions reveal a female-to-male productivity gap of between -11 to -19 percent, values similar to estimates for other African countries. However, when the relationship between gender and productivity is mediated by financial constraints, the gender performance gap disappears. Accordingly, female business-owners who indicate that funding is not a problem, are associated with higher productivity than males, all things equal. In a finding new to the literature, our regressions reveal the importance of supplier credit for Africa’s businesswomen.
Topic:
Globalization, International Trade and Finance, Women, Business, Productivity, and Liquidity
Political Geography:
Africa and Ghana

18. EU-PACIFIC TALKS: Europe and the Indo-Pacific: Migration and demographic changes

Author:
Kristína Chlebáková
Publication Date:
04-2023
Content Type:
Special Report
Institution:
Europeum Institute for European Policy
Abstract:
Demographic developments – the “greying” of society – remain an issue across the first world; in Europe, the expansion of the welfare state and elevated standards of services has put increasing demands on productivity to maintain the prosperity that has become an integral part of the societal contract.
Topic:
Demographics, Migration, Social Contract, and Productivity
Political Geography:
Europe and Indo-Pacific

19. Innovation and Economic Value: A Prospective Benefit-Cost Analysis of the Fab Bhutan Challenge

Author:
Milan Thomas
Publication Date:
10-2023
Content Type:
Journal Article
Journal:
Journal of Bhutan Studies
Institution:
Centre for Bhutan & GNH Studies (CBS)
Abstract:
National governments and international donors fund challenge competitions to foster innovation, but there is little evidence on the economic return to such investments. This paper conducts an ex-ante benefit-cost analysis to project the economic return on the 2023 Fab Bhutan Challenge, which was part of FAB23 Bhutan (the 19th annual international Fab Lab Conference). For the Challenge benefits side of the analysis, studies covering five topics were drawn from: crop yield improvements from climate adaptation (for Challenge 1 in Sarpang), cost and time savings from improved water supply (for Challenge 2 in Pangbisa), livelihood savings from human-wildlife conflict prevention (Challenge 3 in Limbukha Chiwog), revenue generation from cultural exports (Challenge 4 in Thimphu), and economic returns from special needs education (Challenge 5 in Rinchending). For the Challenge costs side, budget data were collected and interviews with challenge participants were conducted. Conservative estimates that account for the probability of some challenge solutions ultimately being nonviable place the economic return to Bhutan between $5 and $12 per dollar invested. The paper concludes by discussing opportunities for scaling solutions from the structured innovation challenge based on the global evidence, and implications of the study for Bhutan’s economic aspirations.
Topic:
Agriculture, Economics, Labor Issues, Water, Innovation, Productivity, Cost-Benefit Analysis, Human-Wildlife Conflict, and Special Education
Political Geography:
South Asia and Bhutan

20. Adoption of Sustainable Practices for Improving Agricultural Productivity in Viet Nam

Author:
Huong-Giang Pham, Tuong-Anh T. Nguyen, and Hoang-Nam Vu
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Conventional agricultural methods are putting considerable strain on developing countries’ environments. This problem can be ameliorated through the adoption of Sustainable Agricultural Practices (SAPs), which can bring economic, ecological and social benefits for farmers, consumers and the overall economy. However, the adoption rates of SAPs remain low in many developing countries. It is therefore vital to provide empirical evidence on the improvement of agricultural productivity as it may assist policymakers in designing suitable policy as well as encourage farmers to adopt SAPs on their farms. This study analyses the impacts of different SAP adoption packages on land productivity and labour productivity in Viet Nam. This is the first attempt in the context of Viet Nam to investigate the economic effects of adopting different SAP packages including crop diversification (CD), conservation agriculture practices (CA) and a combination of those. Using panel Viet Nam Access to Resources Household Survey (VARHS) data with multinomial endogenous switching regressions and an instrumental variable helps reduce potential biases in impact evaluation that previous studies have not fully addressed. Results confirm that if a farmer adopts SAPs, it may raise his net profit per hectare by about 4 million Vietnamese Dong (D)/ha/year, whereas the agricultural income per hectare increases by about 4–6 million D/ha/year. Moreover, the joint adoption of multiple SAPs brings higher benefits (of about 2–4 more million D/ha/year) than single SAP adoption. These findings suggest that policymakers and related stakeholders should focus on promoting the adoption of a combination of crop diversification and conservation practices.
Topic:
Agriculture, Sustainability, and Productivity
Political Geography:
Vietnam and Southeast Asia