US Tech Loss Is the World's Productivity Gain

The recent surge in U.S. investment related to artificial intelligence (AI) and new business registrations, particularly in the high-tech industry, has sparked debate about the potential global implications of this trend. As new technologies take time to develop and diffuse, some future productivity gains are anticipated well ahead of time and are reflected in firms' investment and stock prices. This note explores the global implications of an expected surge in future U.S. productivity, using a vector autoregression model (VAR) that includes productivity, investment, and stock prices to recover a shock—known in the economics literature as a news shock—that best anticipates the future evolution of U.S. total factor productivity (TFP) over history.

The model is estimated with Bayesian methods and 4 lags. Following Cascaldi-Garcia (2022), we also include Pandemic Priors in the VAR for the 4 quarters of 2020 to downplay the strong variations during the onset of the pandemic and prevent it from influencing the parameter estimates. The VAR includes 13 quarterly variables, with 8 variables from the U.S. and 5 variables expressed as a differential between the U.S. and an aggregate of other advanced economies. We define the other advanced economies as the purchasing power parity GDP-weighted aggregate of the rest of the G-7 countries, namely, Canada, France, Germany, Italy, Japan, and the U.K., which we refer to as G-6 hereafter. As our interest is in the international spillover channel, the information set is enriched by the exchange rate. Therefore, our sample starts from the first quarter of 1973, when the Bretton Woods system of fixed exchange rates was effectively abolished and many countries allowed their exchange rates to float. The sample ends at the fourth quarter of 2023.

The methodology allows us to decompose movements in TFP into surprise TFP shocks and news shocks, that is, shocks to expected future TFP. This enables us to better capture the effects of innovation and technological development on TFP, as new technological developments announced today may only impact TFP with a lag. Economic agents that are aware that the economy will be more productive in the future should react to such information today, and this reaction should be reflected in GDP, investment, and to a lesser extent, consumption.

The recent surge in U.S. AI investment and new business registrations may indicate an expected surge in future U.S. productivity. If this productivity gain spills over to other countries, it could have significant global implications for economic growth and living standards. To investigate this, we can use the news shock to examine how current expectations for future U.S. productivity compare to the IT boom and bust period during the 1990s, how a shock to future U.S. productivity affects the economy, and how such a shock spills over to other advanced economies.

The key factors driving the expected surge in future U.S. productivity include investment in AI, new business registrations, and technological advancements. These factors may influence productivity gains in other advanced economies through international spillovers, global supply chains, and talent attraction and retention. The expected surge in future U.S. productivity could have significant global implications for economic growth and living standards, as productivity gains in the U.S. can spill over to other countries through trade, foreign direct investment, and knowledge diffusion.

To maintain its competitive edge in AI and technology, the U.S. can implement several policies while mitigating potential risks. These include investing in AI and R&D, improving education and workforce development, encouraging data sharing and collaboration, implementing a balanced regulatory framework, engaging in international cooperation, and attracting and retaining talent. By implementing these policies, the U.S. can maintain its competitive edge in AI and technology while mitigating potential risks.



In conclusion, the expected surge in future U.S. productivity is driven by investment in AI, new business registrations, and technological advancements. These factors may influence productivity gains in other advanced economies through international spillovers, global supply chains, and talent attraction and retention. The U.S. can maintain its competitive edge in AI and technology by implementing policies that support growth while mitigating potential risks. The global implications of an expected surge in future U.S. productivity are significant, and understanding these implications is crucial for policymakers and investors alike.