AI, Trade, and Creative Destruction: A First Look

Abstract

Artificial Intelligence is a powerful new technology that will likely have large impacts on the size, direction and composition of international trade flows. Yet almost nothing is known empirically about this. One AI-enabled set of services that can be tracked resides in the palm of our hands: the Mobile Apps used by half the world’s population. To analyze the impact of AI on international trade in mobile App services we merge 2014-2020 data on international downloads of mobile Apps with data on the AI patents held by each App’s parent company. From this we build a measure of AI deployment. We instrument AI deployment using cost-shifters from the theory of comparative advantage: Countries with a large stock of AI expertise will have a comparative advantage producing AI-intensive Apps. We show the following IV results. (1) Bilateral Trade: AI deployment increases App downloads by a factor of six. (2) Variety Effects: AI deployment doubles the number of exported App varieties. (3) Creative Destruction: AI deployment increases creative destruction (entry and exit of Apps) and in 2020 the net effect was a 2.5% increase in welfare.