Kristina McElheran | The Rise of Industrial AI in America

Kristina McElheran | The Rise of Industrial AI in America: Microfoundations of the Productivity J-curve(s)

We examine the prevalence and productivity dynamics of artificial intelligence (AI) in American manufacturing. Working with the Census Bureau to collect detailed large-scale data for 2017 and 2021, we focus on AI-related technologies with industrial applications.

We find causal evidence of J-curve-shaped returns, where short-term performance losses precede longer-term gains. Consistent with costly adjustment taking place within core production processes, industrial AI use increases work-in-progress inventory, investment in industrial robots, and labor shedding, while harming productivity and profitability in the short run. These losses are unevenly distributed, concentrating among older businesses while being mitigated by growth-oriented business strategies and within-firm spillovers.

Dynamics, however, matter: earlier (pre-2017) adopters exhibit stronger growth over time, conditional on survival. Notably, among older establishments, abandonment of structured production-management practices accounts for roughly one-third of these losses, revealing a specific channel through which intangible factors shape AI’s impact.

Taken together, these results provide novel evidence on the microfoundations of technology J-curves, identifying mechanisms and illuminating how and why they differ across firm types. These findings extend our understanding of modern General Purpose Technologies, explaining why their economic impact—exemplified here by AI—may initially disappoint, particularly in contexts dominated by older, established firms.

Link to paper here.

Details:

Time: 12:00 pm - 1:00 pm PT

Location: Gates Computer Science Building, Room 119, 353 Jane Stanford Way, CA 94503

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