DP16703 AI-tocracy

Author(s): Martin Beraja, Andrew Kao, David Yang, Noam Yuchtman
Publication Date: November 2021
Keyword(s): artificial intelligence, Autocracy, China, data, Innovation, political unrest, surveillance
JEL(s): E00, L5, L63, O25, O30, O40, P00
Programme Areas: Public Economics, Development Economics, Political Economy
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16703

Can frontier innovation be sustained under autocracy? We argue that innovation and autocracy can be mutually reinforcing when: (i) the new technology bolsters the autocrat's power; and (ii) the autocrat's demand for the technology stimulates further innovation in applications beyond those benefiting it directly. We test for such a mutually reinforcing relationship in the context of facial recognition AI in China. To do so, we gather comprehensive data on AI firms and government procurement contracts, as well as on social unrest across China during the last decade. We first show that autocrats benefit from AI: local unrest leads to greater government procurement of facial recognition AI, and increased AI procurement suppresses subsequent unrest. We then show that AI innovation benefits from autocrats' suppression of unrest: the contracted AI firms innovate more both for the government and commercial markets. Taken together, these results suggest the possibility of sustained AI innovation under the Chinese regime: AI innovation entrenches the regime, and the regime's investment in AI for political control stimulates further frontier innovation.