AI could keep poor countries poor - by Deena Mousa

Under Development

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AI could keep poor countries poor<br>Kicking over the development ladder

Deena Mousa<br>Jul 07, 2026

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On February 28, 2024, the world’s largest call center company lost over a quarter of its value in a single morning, after an announcement from Swedish fintech Klarna that its AI assistant was now handling two-thirds of its customer service chats. Traders were pricing in a longer-term prediction: that companies selling relatively simple tasks from lower-wage countries to higher ones are at significant risk of automation.<br>Were they right? In an age of AI, will the world still need what poor countries sell?

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One way up

It’s popular to think of economic development like a ladder. As they climb the rungs, economies move from relying on agriculture, to manufacturing, to services. When countries become more productive at each industry, they need fewer and fewer workers to produce outputs that sate demand. And so, rather than the entire population engaging in subsistence agriculture, for example, a smaller subset more productively grows the same crops, while the rest move on to manufacturing goods.<br>Every country that has sustained rapid growth since 1950 has done so through exports, which allow them to sell goods or services created with cheaper labor to people in wealthier countries, arbitraging the difference in wages. South Korea, for example, went from an income per capita of $100 to over $35,000 within a single lifetime by moving through a series of exports — wigs, plywood, clothing, ships, steel, cars, and, finally, semiconductors.<br>Without exports, it becomes much more difficult to move up the ladder. For one, a country’s own consumers are usually not sufficient to stimulate growth, both in sheer size and in pre-existing wealth. For another, changing an industry mix is import-intensive, requiring new inputs to production that are often invoiced in strong currencies. Countries must either export, borrow, or rely on remittances in order to have those currencies on hand, and borrowing without exporting can lead to drawing down reserves and default, as Sri Lanka showed in 2022.<br>Finally, exporting directly improves productivity through learning gains. In one study, researchers randomly allocated foreign orders across small Egyptian rug workshops. Those that sold abroad reported 16-26% higher profits and eventually produced measurably better rugs in spite of using the same looms and materials. Their customers set high standards for the product and created feedback loops that improved the weavers’ process.<br>Factories without workers

Manufacturing as a path out of poverty is already breaking down. Globalization has resulted in more competition, and China has established some dominance. At the same time, there’s been some automation of factories that makes those jobs scarcer and more skill-intensive. This means that some countries, many in Latin America and sub-Saharan Africa, are pushed out entirely, while those that remain competitive, mainly in Asia, get fewer jobs out of it. For example, Bangladesh’s garment exports tripled between 2010 and 2024, but employment in the sector stayed flat.

As a result, the share of a country’s employment that is manufacturing now peaks at a much lower figure (and at a much lower GDP per capita) than it used to. For first-movers like Britain, Sweden, and Italy, manufacturing jobs only started to decline at around $35,000 per capita (in today’s dollars), whereas India and much of sub-Saharan Africa hit the same point at about $1,800 per capita. It’s likely that future automation will just accelerate this trend.

At first, this might sound like the story above of how countries develop - an industry gets more productive and needs to employ fewer people, who then move on to new, even more productive jobs. But in historical cases, manufacturing grew to a much larger percentage of the economy first, employing in some cases as much as a third of the workforce. The flattening or draw-down in employment in the sector was driven by labor becoming scarcer and more expensive, pushing factories to automate. By then, those out of a job were more educated and urban, and could be reabsorbed into a budding services sector. But as Bangladeshi factories automate much sooner, not enough growth has already happened for labor to become more expensive and more educated.<br>Unfortunately, even were the population primed to start creating service exports, that rung of the ladder is likely to vanish soon as well.

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Offices without employees

The advent of the internet and cheap telecoms made it possible to export labor from one country to another, without shipping any material goods. Now, an accountant in Manila or a programmer in India could work for a customer in Ohio. India’s tech services industry earned $283 billion last year and currently employs 5.8 million people. In the Philippines,...