Economic growth and convergence during the transition to production using automation capital

This paper examines the implications of automation capital in a Solow growth model withtwo types of labour. We study the transition from standard production to production usingautomation capital which substitutes low-skilled workers. We assume that despite advancesin technology, AI and machine learning, certain tasks can be performed only by high-skilledlabour and are not automatable. We show that under these assumptions, automation capitaldoes not generate endogenous growth without technological progress. However, assumingpresence of technological progress augmenting both effective number of workers and effectivenumber of industrial robots, automation increases rate of long-run growth. We analyse asituation in which some countries do not use robots at all and other group of countries startsthe transition to the economy where industrial robots replace low-skilled labour. We showthat this has potential non-linear effects on?-convergence and that the model is consistentwith temporary divergence of incomes per capita. We derive a set of estimable equationsthat allows us to test the hypotheses in a Mankiw-Romer-Weil framework.