This study investigates the impact of Artificial Intelligence (AI) readiness on labour productivity across 27 European Union (EU) countries between 2019 and 2024. Using a dynamic panel approach, we apply Pooled OLS, Fixed Effects, Difference GMM, and System GMM estimators to account for endogeneity and persistence in productivity. The System GMM model is preferred for its robustness and reliability. Results show that AI readiness positively influences labour productivity, though the effect remains modest, reflecting disparities in adoption across regions. Other significant drivers include foreign direct investment and R&D expenditure, while government consumption and labour costs have a negative impact. Unexpectedly, trade openness shows a negative association, likely due to structural differences in value chain integration. Education and institutional quality were statistically insignificant in the short term. The findings suggest that EU policymakers should prioritize AI implementation, digital infrastructure, skill development, and innovation to close regional gaps and promote inclusive productivity growth.

Keywords: Artificial Intelligence, labor productivity, EU, System GMM, digital transformation