Difficulties in communication can hinder trade and several studies have shown that eliminating language barriers is positively correlated with greater trade.
Mumbai: Across the world, Artificial Intelligence (AI) generates enormous excitement about its potential but little is known about its economic effects. According to a new study, one area where AI could prove influential is international trade. In a NBER working paper, Erik Brynjolfsson of MIT Sloan School of Management and Meng liu and Xiang Hui both of Washington University show that new AI-powered translation systems help eliminate natural barriers and increase international trade.
For all the coverage on tariffs and government restrictions, an important barrier to trade is often ignored: language. Difficulties in communication can hinder trade and several studies have shown that eliminating language barriers is positively correlated with greater trade. The authors use data from e-commerce and online auction giant eBay to show how an AI translation system significantly increased international trade on its platform.
In 2014, eBay, which facilitates trade in over 200 countries, introduced eBay Machine Translation, an in-house machine learning system that translates between languages when users search or view listings on its website. This new system was 7% more accurate than the previous translation service the company was using and led to a 17.5 % increase in exports. According to the authors, the effect on trade from AI translation is roughly equivalent to the effect on trade generated by a 37% reduction in distances between countries. The effect on exports is likely to be even larger for differentiated products, cheaper products and listings with more words in their title.
The authors argue that AI-generated impact usually takes time to show up. There is usually a significant delay between the adoption of AI, which involves costly investment, and the resulting change in output. However, digital platforms such as eBay are able to more easily integrate AI into their existing operations and, as more technology companies adopt AI, this should allow more economic impact assessments.
According to the authors, language translation is merely one application of AI for global trade. New machine learning systems, such as speech recognition, computer vision, and recommender systems can also help boost trade.
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