Economic growth and convergence during the transition to production using automation capital

This paper examines the implications of automation capital in a Solow growth model with two types of labour. We study the transition from standard production to production using automation capital which substitutes low-skilled workers. We assume that despite advances in technology, AI and machine learning, certain tasks can be performed only by high-skilled labour and are not automatable. We show that under these assumptions, automation capital does not generate endogenous growth without technological progress. However, assuming presence of technological progress augmenting both effective number of workers and effective number of industrial robots, automation increases rate of long-run growth. We analyse a situation in which some countries do not use robots at all and other group of countries starts the transition to the economy where industrial robots replace low-skilled labour. We show that this has potential non-linear effects on σ-convergence and that the model is consistent with temporary divergence of incomes per capita. We derive a set of estimable equations that allows us to test the hypotheses in a Mankiw-Romer-Weil framework.