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Will AI Automation Lead to Explosive Economic Growth? Unpacking the Hype

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Rhea Morgan in Tech & Innovation December 2025 • 4 min read.

"A new study reviews the arguments for and against AI-driven economic booms, revealing what could either unlock unprecedented prosperity or create unforeseen bottlenecks."


Artificial intelligence (AI) is rapidly transforming numerous sectors, sparking intense discussions about its potential impact on economic growth. Some experts foresee an era of explosive growth, where AI-driven automation catapults economies to unprecedented levels of productivity and wealth. This vision hinges on AI's ability to perform tasks more efficiently and at a scale previously unimaginable, potentially reshaping global economic landscapes.

The promise of AI-driven economic acceleration has captured the attention of economists and policymakers alike. Several economic models suggest that AI could trigger transformative growth through various mechanisms, such as increasing capital substitutability for labor, automating research and development, and enhancing overall productivity. However, this optimistic outlook is tempered by potential challenges and uncertainties that could hinder AI's economic impact.

To provide a balanced perspective, a recent study analyzes the arguments for and against AI-induced explosive economic growth, offering a quantitative foundation for key considerations. This analysis delves into potential bottlenecks in automation, preferences for human-produced goods and services, and technical and regulatory hurdles in implementing AI systems. By examining these factors, the study aims to evaluate the range of growth rates that might be achievable through AI automation, considering the constraints imposed by previously identified limiting factors.

The Case for AI-Driven Economic Growth: Scalability, Expansion, and Automation

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The core of the argument for AI-driven explosive growth rests on three key factors, primarily around AI serving as an accumulable substitute for human labor. First, AI could enhance technological progress, leading to increasing returns to scale and accelerating productivity gains. Second, AI could dramatically expand the total effective workforce by combining human and artificial workers. Third, rapid automation could cause a significant, though possibly temporary, surge in economic output.

This increasing returns-to-scale phenomenon is crucial. Traditional economic models often hit a ceiling because labor, a key input, is limited. AI, however, could break this constraint by creating a scalable “digital labor force.” Think of it this way: every new AI not only adds productive capacity but also helps improve the AI systems themselves, leading to exponential gains.

  • Scalability: AI systems can be replicated and deployed at a fraction of the cost and time it takes to train and deploy human workers.
  • Expansion: AI expands the workforce, taking on roles that humans cannot or prefer not to do, thereby boosting overall productivity.
  • Automation: Rapid automation of tasks previously performed by humans leads to a surge in economic output, creating a cycle of growth.
To illustrate this point, consider a generalized version of an R&D-based growth model where total factor productivity and capital both accumulate. AI can accelerate the rate at which total factor productivity increases, leading to super-exponential growth. Even with conservative estimates, this model suggests that AI could drive growth rates far beyond current norms.

Navigating the Future: The Promise and Perils of AI Automation

The rise of AI presents both immense opportunities and potential risks. While the prospect of explosive economic growth is enticing, it is essential to address the challenges and uncertainties that could hinder AI's positive impact. By carefully considering regulatory frameworks, addressing alignment issues, and monitoring the pace of automation, we can strive to harness AI's transformative potential while mitigating its potential downsides. The future hinges on our ability to navigate this complex landscape responsibly and proactively.

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Everything You Need To Know

1

How might AI lead to explosive economic growth?

AI has the potential to drive explosive economic growth by acting as an accumulable substitute for human labor, enhancing technological progress, expanding the effective workforce, and enabling rapid automation. AI can increase productivity gains and reshape global economic landscapes by performing tasks more efficiently. Moreover, every new AI can help improve existing AI systems, leading to exponential gains. These benefits are due to scalability, expansion and automation, but are still dependent on regulatory frameworks.

2

What are the key components driving the argument for AI-driven economic expansion?

The core arguments supporting AI-driven economic expansion revolve around AI's potential to enhance technological progress, expand the workforce, and enable rapid automation. AI's scalability allows systems to be replicated and deployed at a fraction of the cost and time compared to human workers. AI can take on roles humans cannot or prefer not to do, boosting productivity. Finally, rapid automation of tasks leads to a surge in economic output, creating a cycle of growth.

3

What are the potential bottlenecks that could prevent AI from triggering explosive economic growth?

While the idea of AI-driven growth is appealing, several bottlenecks could hinder its impact. These include limitations in automation, societal preferences for human-produced goods and services, and technical and regulatory hurdles in implementing AI systems. Overcoming these challenges is essential to realize AI's full potential for transformative economic growth. The ability to carefully consider regulatory frameworks and addressing alignment issues is important to avoid negative impacts.

4

How does 'increasing returns to scale' relate to AI and economic growth, and why is it so crucial?

Increasing returns to scale is critical because traditional economic models often face limitations due to constraints on labor. AI can potentially break this constraint by creating a scalable digital labor force. Each new AI not only adds productive capacity but also helps improve other AI systems, leading to exponential gains in efficiency and output. This concept is vital for understanding how AI could drive growth rates beyond current norms by accelerating the rate at which total factor productivity increases.

5

What should we consider to responsibly navigate the future with AI automation and maximize its benefits?

To responsibly navigate the future with AI automation, it's essential to address challenges and uncertainties that could hinder its positive impact. Careful consideration of regulatory frameworks, addressing alignment issues, and monitoring the pace of automation are crucial. By proactively managing these factors, we can harness AI's transformative potential while mitigating potential downsides, ensuring that AI benefits society and the economy.

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