--- title: "The AI Productivity Transmission Gap in Small Open Economies: A Dynamic Institutional Absorptive Capacity Model · AI Fault Line" url: https://aifaultline.com/research/p/doi-10-5281-zenodo-21220426/ description: "AI Fault Line is a neutral, evidence-cited field guide to why experts looking at the same developments disagree about AI's effect on productivity, jobs, inequality, regulation and the pace of change." --- [Research](https://aifaultline.com/research/) # The AI Productivity Transmission Gap in Small Open Economies: A Dynamic Institutional Absorptive Capacity Model Kwan Hong Tan · Zenodo (CERN European Organization for Nuclear Research) · 6 Jul 2026 [Read original source](https://doi.org/10.5281/zenodo.21220426) Open access Where this sits in the debate - [Will AI actually boost productivity and growth?](https://aifaultline.com/debate/productivity/) · its finding: it depends ([why studies differ](https://aifaultline.com/debate/productivity/#why)) Direction of the finding as read from the abstract by an AI model ([AI-written](https://aifaultline.com/about/)). ## Key takeaway [AI-written](https://aifaultline.com/about/) A theoretical paper proposing a Dynamic Institutional Absorptive Capacity model of why the same AI shock can yield different productivity outcomes in small open economies. It argues firm-level efficiency gains are filtered through intangible investment, skills, data governance, competition policy, labor mobility and social insurance, and derives propositions on threshold effects, J-curve dynamics and policy sequencing. ## Abstract Artificial intelligence is widely expected to raise productivity, yet its macroeconomic gains remain uncertain, uneven, and institutionally mediated. This paper develops an original Dynamic Institutional Absorptive Capacity (DIAC) model to explain why the same AI shock can produce divergent outcomes in small open economies. The central argument is that AI does not translate directly from firm-level task efficiency into national productivity. Its effect is filtered through complementary intangible investment, skills formation, data governance, competition policy, labor-market mobility, and social insurance. The paper formalises an AI productivity transmission gap between technical adoption and inclusive productivity realisation. Using analytical theory-building, it identifies three regimes: adoption without absorption, constrained complementarity, and adaptive complementarity. It also derives propositions on threshold effects, productivity J-curve dynamics, distributional stress, and policy sequencing. The model implies that small open economies should not maximise AI adoption as an isolated target, but should build institutional absorptive capacity that converts AI exposure into productivity, worker mobility, and shared prosperity. ## About this publication **Preprint.** A preprint — posted publicly before or without journal peer review; findings may still be revised. Published 2026 (3 months ago) Citations 0 (OpenAlex) 0 citations recorded by OpenAlex — too few 2026 papers in this collection for a fair comparison. [Chart: published 2026] ## More on this topic Related by theme, not necessarily by method or conclusion. - [Navigating the Jagged Technological Frontier: Field Experimental Evidence of the Effects of AI on Knowledge Worker Productivity and Quality](https://aifaultline.com/research/p/doi-10-2139-ssrn-4573321/) SSRN · 2023 - [Generative AI at Work](https://aifaultline.com/research/p/doi-10-1093-qje-qjae044/) The Quarterly Journal of Economics · 2025 - [The Impact of AI on Developer Productivity: Evidence from GitHub Copilot](https://aifaultline.com/research/p/doi-10-48550-arxiv-2302-06590/) arXiv · 2023 - [The Productivity J-Curve: How Intangibles Complement General Purpose Technologies](https://aifaultline.com/research/p/doi-10-1257-mac-20180386/) American Economic Journal Macroeconomics · 2020 Overview assembled automatically from collected metadata. [How this site is built](https://aifaultline.com/about/).