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Cristian Alonso, Mr. Andrew Berg, Siddharth Kothari, Mr. Chris Papageorgiou, and Sidra Rehman

, Capital, Consumption, and Savings 9 Transition. Factor Prices and Labor Shares 10 Transition with Closed and Open Capital Accounts (σ = 3) 11 Steady State Comparison (percent changes with respect to initial steady state) 12 Moments in the Initial Steady State 13 Steady State Comparison (percent changes with respect to initial steady state) A.1 Real Wages and Robot Density List of Tables 1 Calibration of One-Sector Model 2 Calibration for Two-Labor Model 3 Percent Change in per-capita GDP following Increase in Robot Productivity 4 Calibration

Cristian Alonso, Mr. Andrew Berg, Siddharth Kothari, Mr. Chris Papageorgiou, and Sidra Rehman
This paper considers the implications for developing countries of a new wave of technological change that substitutes pervasively for labor. It makes simple and plausible assumptions: the AI revolution can be modeled as an increase in productivity of a distinct type of capital that substitutes closely with labor; and the only fundamental difference between the advanced and developing country is the level of TFP. This set-up is minimalist, but the resulting conclusions are powerful: improvements in the productivity of “robots” drive divergence, as advanced countries differentially benefit from their initially higher robot intensity, driven by their endogenously higher wages and stock of complementary traditional capital. In addition, capital—if internationally mobile—is pulled “uphill”, resulting in a transitional GDP decline in the developing country. In an extended model where robots substitute only for unskilled labor, the terms of trade, and hence GDP, may decline permanently for the country relatively well-endowed in unskilled labor.
Cristian Alonso, Mr. Andrew Berg, Siddharth Kothari, Mr. Chris Papageorgiou, and Sidra Rehman

. We can then examine the implications of an increase in robot productivity for inequality within and between each region, both in the long run and during the transition. Even this limited experiment turns out to make some powerful points about the likelihood of divergence arising from this wave of technology, as well as disentangling and clarifying many of the stories in the qualitative literature. 7 The only frictions in our simple model are labor and (in some variants) capital immobility. Thus, the improvement in “robot” technology we posit is welfare

or complements. If they are substitutes, an increase in robot productivity leads to a divergence in per capita GDP in favor of advanced economies-where it is more profitable to invest in robots because wages are relatively high. The labor share declines in both regions. However, if labor and robots are complementary, greater robot productivity helps sub-Saharan Africa-where it is more profitable to invest in robots combined with relatively cheap labor-progress toward convergence of per capita GDP with advanced economies. The labor share increases in both regions

Mr. Andrew Berg, Mr. Edward F Buffie, and Luis-Felipe Zanna
We may be on the cusp of a “second industrial revolution” based on advances in artificial intelligence and robotics. We analyze the implications for inequality and output, using a model with two assumptions: “robot” capital is distinct from traditional capital in its degree of substitutability with human labor; and only capitalists and skilled workers save. We analyze a range of variants that reflect widely different views of how automation may transform the labor market. Our main results are surprisingly robust: automation is good for growth and bad for equality; in the benchmark model real wages fall in the short run and eventually rise, but “eventually” can easily take generations.
Aidar Abdychev, Cristian Alonso, Mr. Emre Alper, Mr. Dominique Desruelle, Siddharth Kothari, Yun Liu, Mathilde Perinet, Sidra Rehman, Mr. Axel Schimmelpfennig, and Preya Sharma
Far-reaching changes in technology, climate, and global economic integration are transforming the world of work in ways that we do not yet fully understand. Will the swift technological advances of the Fourth Industrial Revolution raise the standards of living for everyone? Or will robots massively displace workers leading to a jobless future where only a few benefit from the fruits of innovation? Will mitigation efforts be able to cushion the adverse effects of climate change, including food shortages and mass migration, which would place extra pressure on urban labor markets? Will countries continue to integrate commercially and financially, fostering growth and employment? Or will trade wars become a norm in a world increasingly fragmented and inward-looking? In sub-Saharan Africa, these uncertainties meet a dramatic increase in population and a rapid expansion in the labor force, which is becoming increasingly urban.
Aidar Abdychev, Cristian Alonso, Mr. Emre Alper, Mr. Dominique Desruelle, Siddharth Kothari, Yun Liu, Mathilde Perinet, Sidra Rehman, Mr. Axel Schimmelpfennig, and Preya Sharma

set of tasks that can be performed by machines. Berg, Buffie, and Zanna (2018) also recognize that automation may substitute directly for labor, and model technological change as an increase in robot productivity where robots are treated as a separate input in the production function. Focusing on advanced economies, they find that the more easily robots substitute for workers, the higher the increase in GDP per capita and the greater the decrease in labor share, leading to a richer economy, but with more inequality. We extend the framework in Berg, Buffie, and

The Spring-Summer 2019 issue of the IMF Research Perspectives explores how technology deals with old questions. Articles discuss the ways technological progress and the increased availability of data have helped in some areas, while presenting new challenges for analyzing various matters. The issue also includes an interview with Gita Gopinath, the new director of the IMF Research Department.
International Monetary Fund. Asia and Pacific Dept
This paper outlines that the banking sector remains healthy, backed by high capital, liquidity, provisioning and profitability ratios. Sector-wide nonperforming loans (NPLs) have increased slightly (to 2 percent in 2017:Q1), due largely to stresses in the Oil and Gas (O&G) services sector. Banks have responded by increasing provisions (using forward-looking measures of impairment) and restructuring their loans. Overall, the banking sector is well-positioned to withstand shocks. Capital and liquidity positions are sufficiently strong and well above regulatory requirements. Capital and liquidity positions of the local banking groups remain strong. Liquidity coverage ratios (LCR) of all three major banks remained high and rose in 2016:Q4, remaining well above the regulatory limits. The turnaround in bank’s profitability (especially the strong performance in 2017:Q1) is attributed to two factors: an acceleration in credit growth and increases in fee income from wealth management services. Local banks have been a key factor behind the wealth management sector’s growth and its main beneficiary.
International Monetary Fund. External Relations Dept.
This issue of Finance & Development focuses on how technology is driving growth. The issue looks at “transmission channels.” As with drive-through tellers, ever-more-powerful technology allows us to streamline, replacing less efficient practices (the drive-through teller) with more efficient ones (smartphone deposits). Other articles in this issue cover package chronicle technology’s power to transform: Sanjiv Ranjan Das examines big data’s influence on economics and finance; Aditya Narain documents the rise of a new breed of hybrid financial technology—fintech—firms; and Sharmini Coorey touts distance learning for better policymaking. The issue also examines the impact of remittances on monetary policy, de-dollarization in Peru, and the efficacy of public-private partnerships, among other topics. It also presents profile of Nancy Birdsall, the former head of the Center for Global Development, who has dedicated her career to fighting poverty and inequality through compelling research.