AI Adoption in SMEs and Its Economic Impact on Pakistan’s Development

Purpose This paper investigates the adoption of Artificial Intelligence (AI) by Small and Medium Enterprises (SMEs) in Pakistan and explores its potential economic implications at both organizational and national levels. Design/Methodology/Approach The study is based on survey data collected from 368 SMEs across multiple industries. It examines adoption patterns, levels of investment, perceived benefits, and the barriers hindering widespread integration of AI. Findings Results reveal that nearly two-thirds of SMEs have already adopted AI, with the highest application observed in marketing, sales, and customer service, while adoption in HR and product development remains limited. Efficiency, cost reduction, and improved decision-making emerged as the primary drivers for adoption. However, challenges such as high implementation costs, skill shortages, limited awareness, and resistance to change continue to impede broader integration. The analysis further demonstrates a strong positive association between AI adoption, productivity gains, and revenue growth, which collectively enhance organizational competitiveness and contribute to national economic development. Practical Implications The findings highlight the need for targeted policy support, educational initiatives, and financial incentives to enable SMEs to overcome structural and resource-related barriers. These measures are critical for accelerating AI integration, strengthening SME competitiveness, and fostering sustainable digital transformation. Originality/Value This study contributes to the limited body of empirical research on AI adoption among SMEs in developing economies, particularly within the Pakistani context. By offering insights into adoption patterns, challenges, and economic outcomes, it provides valuable guidance for policymakers, entrepreneurs, and industry stakeholders in advancing technology-driven growth.