Thursday 3 May 2018

Who is going to win the race for AI: China or US?

Who will win the race in Artificial Intelligence (AI)? Recent articles have focused on this big battle between China and the US. Arguments appear in favour of both countries. China has huge amounts of data and a more relaxed framework regarding privacy, whereas the US attracts a vast amount of talent to develop software computing and has the good climate to let digital firms with new ideas flourish.

Frankly, I think this issue is slightly more nuanced.

Arguments on both sides in favor of a strong AI based does not year, however, make clear who of the two will profit best from long-run economic benefits using AI. For instance, it is often pointed out that China has more data than the US and therefore would win the race. To me, it seems that both countries own large amount of data. And due to strong network effects, the fact of having large sets of data just simply points out that the focus is on these two countries, and not for instance on the EU. Hence, both can win.

The question who will reap greater long-run benefits from AI is a bit more complicated to answer. Who of the two will have sustainable specialization patterns in AI depends on what economists call comparative advantage. China may be big and therefore have large network effects in AI, but that does not yet mean comparative advantage. For that to determine, one needs to have a look at what sectors are most amenable to AI.

The figure below sets out the most AI-intensive sectors based on current usage of data and software out of a much wider range of industry and services sectors. The figure reveals some interesting insights. For instance, it shows that mainly services appear to be most open to AI such as internet and software services, finance and insurance, computer systems, and logistics. But a couple of manufacturing sectors are also stands out such as chemicals, motor vehicles, computer and electronics and electrical equipment. 

Source: author’s calculations; US Census; US BLS.