Artificial intelligence, firm growth, and product innovation

Tania Babina · Anastassia Fedyk · Alex Xi He · James Hodson

1,446 citations0/0 files storedJournal of Financial Economics

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Firm Innovation and Growth Economic Growth and Productivity Impact of AI and Big Data on Business and Society

Abstract

We study the use and economic impact of AI technologies. We propose a new measure of firm-level AI investments using employee resumes. Our measure reveals a stark increase in AI investments across sectors. AI-investing firms experience higher growth in sales, employment, and market valuations. This growth comes primarily through increased product innovation. Our results are robust to instrumenting AI investments using firms' exposure to universities' supply of AI graduates. AI-powered growth concentrates among larger firms and is associated with higher industry concentration. Our results highlight that new technologies like AI can contribute to growth and superstar firms through product innovation.

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References

1990Endogenous Technological Change 1992A Model of Growth Through Creative Destruction 2019Robots and Jobs: Evidence from US Labor Markets 2003Managing with Style: The Effect of Managers on Firm Policies 2018The Race between Man and Machine: Implications of Technology for Growth, Factor Shares, and Employment 2017Technological Innovation, Resource Allocation, and Growth*2020The Fall of the Labor Share and the Rise of Superstar Firms*2016Text-Based Network Industries and Endogenous Product Differentiation

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