Artificial Intelligence, Trade Convergence and Deglobalisation: A Cross-country Analysis

Of late, one of the fundamental technological revolutions that has pioneered the structural transformation of almost all segments of the globalised world is the widespread application of artificial intelligence (AI). The positive and adverse implications of AI in various spheres have been the crux of the debate in recent times. The present article seeks to explore the impact of AI readiness (measured by the AI Readiness Index) on Trade/GDP, Merchandise_Trade/GDP and Digital_Service_Trade/GDP separately across two sets of 28 nations—advanced economies (AEs) and emerging and developing economies (EMDEs). Using panel regression, it tries to examine β-convergence (unconditional and conditional) and σ-convergence of Trade/GDP. Generalised Entropy Measures (GEMs) are used to explore the variation in Trade/GDP to analyse the existence of a deglobalising trend separately for Merchandise_Trade/GDP and Digital_Service_Trade/GDP. The findings suggest a strong potential of AI to accelerate movement toward a services economy (particularly digital services), but with heterogeneous impact depending on differences in AI readiness. The analysis of GEM separately for Merchandise_Trade/GDP and Digital_Service_Trade/GDP depicts ‘existence of polarisation’ or ‘deglobalisation’ of the countries. Inequality is falling over time in AEs, but it is rising in EMDEs for digital service trade, whereas inequalities are falling for Merchandise_Trade/GDP in both groups. Thus, AEs with better readiness to AI will be moving more towards digitally service trade, whereas EMDEs with improved AI readiness tend to shift towards digital services, but those with poor AI readiness are inclined towards Merchandise_Trade/GDP. JEL Codes: O33, F14, F62, C33, L86