Physical AI Innovation
We examine physical AI — the incorporation of artificial intelligence (AI) advances into inventions across the non-technology economy. Physical AI patenting is nearly as prevalent as technology AI patenting; commands excess financial market value and reflects a persistent transatlantic gap. Tracing effects through production factors and outcomes and instrumenting with laboratory AI knowledge (universities and federal), we show that physical AI innovation increases annual growth in employment and capital stock by 0.16%-1.02% and 0.17%-2.13%, respectively. Increases of similar magnitude are observed in profit growth, driven primarily through a revenue growth channel. One important exception arises: physical AI patents that are also automation patents – which we term smart automation – reduce costs per unit of output, an effect concentrated in industries with high abstract/cognitive task intensity.
Adair Morse
Adair Morse is the William A. and Betty H. Hasler Chair in New Enterprise Development, Professor at the Haas School of Business at the University of California, Berkeley, and Fellow at the Berkeley Law School. Recent policy service includes serving as Deputy Assistant Secretary for Capital Access of the U.S. Department of the Treasury (2021-2023), co-founding pandemic public-private partnerships with the State of California (2020) and serving on the Expert Panel for oversight of the ($2 trillion) Global Fund for the Ministry of Finance of Norway (2015-2020). Adair is an award-winning teacher of Frontier Ventures: Space, Air and Arctic, New Venture Finance, and the Haas Impact Fund. Adair’s research spans multiple areas of finance: physical AI, localized finance and innovation, household finance, climate finance, active banking, corporate governance, and pension management. She holds a Ph.D. in finance from the University of Michigan, master's degrees in statistics and agricultural economics from Purdue University, and a bachelor’s degree from Colgate University.