Macroeconomic Implications of Automation and Digitalisation

: (Alternative Format Thesis)

Abstract

Kaldor's facts require a constant capital-output ratio, real interest rate and factor income share while output per capita grows exponentially. However, recent empirical evidence suggests that capital income share has been increasing in many countries. There is an urgent need to explain the rising capital income share caused by automation theoretically. This research developed three models studying the mechanisms and impacts of automation on the macroeconomy. We first develop a growth model with continuous capital productivity deepening. The rising capital income share can be explained by the degree of automation in capital productivity research and the final good production. The growth rate of the economy is increasing in the degree of automation in research and the task production. The second model studies the short-run impacts of horizontal automation on welfare. The model assumes a monopoly innovates and supplies the automation capital to the final good firms to displace labour. The results found that the monopoly has an equilibrium profit incentive to supply productive automation capital with low marginal and research costs. Horizontal automation can improve welfare when the automation capital is sufficiently productive. However, a lower marginal and research cost of the monopoly might reduce the intertemporal utility due to the downward pressure on the equilibrium interest rate. The last model studies the long-run impacts of horizontal automation prior to the steady state. The overlapping generation framework allows heterogeneity among the individuals, where the young work and purposefully invest in capital and the old receive the rental income. In the steady state, horizontal automation comes to a stop. The results found that excessive horizontal automation before the steady state might be welfare worsening. There exist optimal capital tax rates which maximise the steady-state intertemporal utility of the individuals. Finally, for the empirical part of the research, we investigate the roles of digitalisation in reducing excess mortality and economic losses during the Covid-19 pandemic. The paper found that heavy reliance on the trade of services that can be produced from home helped countries save lives and reduce economic losses.

Date of Award	21 Feb 2024
Original language	English
Awarding Institution	University of Bath
Supervisor	Andreas Schaefer (Supervisor) & Jonathan James (Supervisor)