The Economic Geography of AI

Anticipation is indispensable, but determination is best for development. Artificial Intelligence (AI) can become a driver for overcoming development traps that hinder sustained progress in Latin America and the Caribbean (LAC).

These traps or structural challenges include inherited inequality, intergenerational immobility, low economic and productivity growth, often associated with an export structure concentrated in primary and extractive sectors, revenue shortfalls to finance digital-facing public services, and natural resource and high-carbon growth paths.

To allow AI to propel development, it is crucial to align digital transformation forward-leaning projects with productive development policies, including the digital transformation of selected priority sectors, and to close digital infrastructure, AI talent, and governance gaps, while advancing technical cooperation across LAC to ensure the ethical, inclusive, and accountable use of AI.

Intergenerational immobility is a deep-seated issue, especially prevalent in the Global South, the Caribbean, and among poorer strata globally, rooted in historical hierarchies and the vestiges of old empires. While digital technology has the potential to make prosperity for all an authentic possibility, without equitable and sustainable steering, AI may create the most unequal societies in human history.

Specific geographic regions within countries often echo a history of inherited inequality and intergenerational immobility, a problem linked to spatial stigmatisation and predetermined destinies in economic geography. The potential “ability gap” between the rich and the poor might become impossible to close if the wealthy use superior AI skills to create additional opulence.

This highlights the need to level the playing field, provide comprehensive social safety nets, and offer targeted training opportunities for vulnerable workers to ensure the AI transition is inclusive. Any failure to address this may lead to unregulated polarisation within income brackets.

The moment for New Narratives is now, as well as new approaches that go beyond conventional analysis to address the “suffering” side of growth to tackle these deeply embedded issues, especially in provincial communities. AI adoption is accelerating across LAC despite these systemic challenges and surpassing expectations given its digital weight.

LAC countries account for fourteen per cent of global visits to AI solutions, compared to an eleven per cent share of the world’s internet users. But this emerging trend must be tempered by sharp contrasts across countries in LAC. LAC countries can be clustered into three maturity categories: pioneers, adopters, and explorers.

The true pioneers are Chile, Brazil and Uruguay. Colombia, Ecuador, Costa Rica, and the Dominican Republic are in the adopter category, as they are closing connectivity gaps, nurturing talent, and designing and deploying national AI strategies. The rest are in the explorer category, with incipient ecosystems and limited human capability development.

Significant structural gaps in talent, investment and governance are noticeable. Advanced AI training remains scarce and is concentrated in a few countries. The talent gap relative to the global average has widened since 2022 because of an accelerated brain drain of specialists who can now earn higher wages in silicon cities. The region’s 6.6 per cent share of global GDP is not matched by its 1.12 per cent share of AI investment.

This “canyon” in investment makes it difficult for LAC to create and scale its own AI solutions, even as it adopts existing ones. Many national AI strategies in the region lack funding and robust implementation plans, resulting in ambitious goals without the necessary budget or monitoring and evaluation mechanisms to achieve them.

Shallow AI investment portfolios also point to a weak capacity for AI innovation and research and development, as reflected in the region’s low share of AI patents. This hampers the region’s ability to scale productive, technological and innovative initiatives. Many policy prescriptions also tend to focus on regulatory aspects rather than on consolidating a technological ecosystem to support productivity and well-being for all. At this time, AI adoption in LAC is concentrated in a small cluster of countries and primarily focused on the consumption of ready-made, end-user solutions with modest technical requirements. However, AI-Assemblages offer LAC an opportunity to democratise innovation and strengthen productivity.

AI adoption can contribute to the design of e-commerce strategies, democracy in education, health, and other public services, expanding social protection, reducing gender gaps, halting environmental degradation, promoting greener growth, and strengthening government transparency and efficiency. In LAC, no country exceeds the world average in AI investment relative to GDP per capita, and the regional average remains six times below that threshold.

AI is consolidating as a driver of digital transformation, but this requires building National Data Libraries as a first step, followed by Data Embassies that apply principles from the Vienna Convention on Diplomatic Relations to grant them legal protections, such as inviolability. LAC must develop indigenous diagnostic tools that can serve as compasses to guide the region toward a transition that is fair, inclusive and people-centred.