Thresholds of Exclusion: How Restrictions on AI Capital Perpetuate Global Productivity Gaps and Asymmetric Innovation

This article examines the long-run economic implications of export restrictions on advanced AI hardware, focusing on their role in reinforcing global inequality and technological divergence. While such restrictions are implemented to protect national security and sustain domestic technological leadership, our analysis demonstrates that they inadvertently hinder the diffusion of critical AI inputs in foreign economies. Using a dynamic two-country model, we capture the interplay between domestic supply constraints, technology transfer and market price dynamics. Our findings reveal that stringent export controls not only slow down the rate of technology accumulation in recipient countries but also elevate input prices, further suppressing productivity and deepening output disparities. The model identifies a threshold level of export openness necessary for foreign economies to catch up with advanced nations. These results contribute to the existing literature and provide important policy insights regarding the trade-offs between national security objectives and the promotion of global economic convergence.