It’s no surprise to anyone who has looked at recent European economic trends that Italy has certainly been lagging in terms of output, production, and general economic welfare. However, while they are still behind in the race to expand their economy, data suggests that they are catching up fast. In the most recent quarter, output of capital goods, which is a strong indicator of investment, rose slightly despite being expected to decline. Thanks in large part to AI research and application, Italy has experienced a recent increase in GDP growth that has pushed them to begin to catch up with their EU counterparts.
The previous declines in Italian economic welfare can be attributed to low productivity, high public debt, a fragile banking system, and internal political complications. Historically speaking, the two ways to increase economic welfare are through the factors of production, labor and capital. Total factor productivity (TFP) impacts economic welfare usually in the form of technological advancements, which is where AI would fall. The mistake being made here is that AI has the capability to be a hybrid of the two already existing factors of production, rather than just a subset of TFP. This is because AI has the ability to perform tasks and analyze data quicker and more efficiently than human labor in most situations. Also, unlike the majority of capital investments, such as buildings and machinery, AI systems do not depreciate in value over time. It is quite the opposite; due to self-learning capabilities, AI is constantly increasing its own broadness and depth of knowledge.
Italy is amongst the top five countries in the world in relation to AI research and application. This is good news for the future of Italian markets, as AI can be used in various ways to increase investment returns. The integration of AI systems into Italian firms could be the key to reform, as mentioned by the new economy minister, who stated, “Italy’s government has no intention of leaving the Euro and plans to focus on cutting debt levels, looking to boost growth through investment and structural reforms rather than deficit spending.” In an article by Mark Purdy and Paul Daugherty titled “Why Artificial Intelligence is the Future of Growth,” they calculated that, with the integration of AI into Italian markets, the size of the economy would double in a relatively short 30 years, which is 100% faster than it would take without the help of AI. Italy’s recent economic growth can partially be attributed to advancements in Artificial Intelligence serving as a third production factor increasing output and efficiency.
Even though Italian GDP is increasing by 1.5% yearly, the growth rate is still moderately slow. With the recent surge of AI application, the Italian growth rate has been on the rise; however, much more integration is required to reach peak performance. Overall, if Italy stays committed to AI research and continues to integrate machine learning technology into general business practices and firms, they will be able to catch up to, and perhaps surpass their European counterparts who are lacking in this revolutionary field.
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Written by Victor Sinopoli, Edited by Rachel Weissman & Alexander Fleiss
References:
https://www.cnbc.com/2018/06/10/italian-economy-minister-vows-to-stay-in-euro-cut-debt-level.html
https://data.worldbank.org/country/italy?view=chart
Purdy, M., Daughtery, P., “Why artificial intelligence is the future of growth,” Sep 27, 2017 [accessed June 12, 2018]