The Economic Implications of AI-Driven Automation: A Dynamic General Equilibrium Analysis

This paper develops a dynamic general equilibrium (DGE) model to assess the impact of AI-driven automation on labor and capital allocation in an economy. The model considers the endogenous response of firms to task automation and labor substitution, showing how the increasing use of AI affects total output (GDP), wages, and capital returns. By introducing task complementarity and dynamic capital accumulation, the paper explores how automation impacts labor dynamics and capital accumulation. Key results show that while AI enhances productivity and GDP, it can also reduce wages and increase income inequality, with long-run effects that depend on the elasticity of substitution between labor and capital.