A Progress Report on the Economics of Artificial Intelligence: Impacts, Challenges, and Future Directions

The rapid advancement of artificial intelligence (AI) marks a transformative shift for economies and the field of economics. As a general-purpose technology, AI automates complex tasks, drives productivity, and fosters cross-sectoral innovation, positioning it as a central force in economic change. This paper addresses three key questions: What distinguishes AI as an economic driver compared to past technologies? How does AI influence productivity, labor markets, and inequality? What policy measures are essential to maximize AI’s benefits while mitigating its risks? The review highlights AI’s distinct role in reshaping economic models, its delayed productivity gains typical of the Solow Paradox, and its impacts on labor market polarization, income inequality, and market concentration. It underscores the importance of a comprehensive understanding of AI’s capabilities and limitations to guide theoretical and empirical research. Additionally, it identifies disparities across skill levels and regions, along with underexplored areas like international trade and education. The paper advocates for balanced policies that promote innovation while addressing socioeconomic challenges, fostering a resilient and inclusive economy.