Does artificial intelligence enhance firm productivity?

Artificial Intelligence (AI) is seen as a modern general-purpose technology (GPT) with the potential to enhance productivity across firms and sectors. Notwithstanding the growing interest in AI as a new source of productivity growth, evidence on firm-level productivity gains from using AI is scarce. This paper contributes to filling this evidence gap by estimating an augmented production function model using linked firm-level data from Ireland over 2020-2021. To identify a causal effect of AI on firm productivity, we exploit variation of the adoption of AI across industries and use an instrumental variable (IV) empirical approach. Our results indicate that using AI and the intensity of using AI across business areas have positive effects on firm-level productivity over and above other capital and labour inputs and controlling for unobserved industry-specific effects. The effect of using AI on productivity is smaller and the relationship is weaker when conditioned on other factors that influence firm productivity including skills, age, foreign ownership, and unobserved industry-specific effects. The estimated effect of AI intensity on productivity is positive and significant across all regression models suggesting that on average, other things equal, firms using AI more intensively are more productive. Taken together, these results suggest that the productivity gains of using AI are stronger when AI is used more intensively across business areas.