Channels of brain drain and brain gain

Traditional models of high-skilled emigration predict negative consequences for economic growth in sending countries. In these models, high-skilled immigration results in increased global inequality, with rich countries getting richer and poor countries getting poorer. The models treat education as exogenous, or coming from outside the model, and do not allow education levels in source countries to change in response to emigration. This research was pioneered byjagdish Bhagwati and Koichi Hamada (1974).⁴

Later models, first developed in the 1990s, are more optimistic. These models recognize that emigration may lead people left behind in the source country to increase their own human capital. In addition, source countries may benefit from emigrants returning to follow entrepreneurial pursuits, boosting productivity through information diffusion or increasing investment through remittances. There are four main channels through which these benefits may occur: the human capital channel, the productivity channel, the transfer channel and the institutional channel. (These first three are also known as the endogenous growth channel, the brain circulation channel and the network effect.)

The human capital channel allows the level of educational attainment to depend in part on migration prospects. The prospect of migrating to a country with a higher return to education can motivate people in the sending country to acquire more education, as shown in Figure n.3. Due to legal restrictions, quotas or personal choices, not all of these people end up emigrating, as shown in Figure 11.4. The human capital that individuals accumulated in anticipation of working abroad remains in the home country, and education levels rise in the source country.

Several case studies suggest that the human capital channel leads to an increase in education in source countries. In general, enrollment rates in secondary and tertiary education programs in developing countries increase in response to the option of emigration (Djajic, Docquier and Michael, 2019). In Fiji, Indo-Fijians invested in education in order to migrate to Australia, New Zealand or Canada after a 1987 military coup created an unstable environment for the Indian minority group. Since those destinations have skills-based point systems, Indo-Fijians needed to acquire high levels of schooling to be able to migrate there. The rate of emigration among tertiary- educated Indo-Fijians rose, but education levels among the remaining population and returning migrants rose as well (Chand and Clemens, 2008). In Nepal, soldiers are recruited into the British Army as part of the special Gurkha brigade. In order to qualify, Nepalese soldiers must complete a certain level of schooling. An increase in the education cut-off led to a higher likelihood that Nepalese completed primary and secondary education (Shrestha, 2cm). In China, emigration affects the human capital of those left behind, but the impact depends on the level of education of the migrant. Permanent emigration has a positive impact on human capital acquisition at the middle school and high school level, while temporary emigration boosts only middle school attainment (Ha, Yi and Zhang, 2016).

Studies that look across countries also find evidence of a positive impact of emigration on human capital attainment in the sending country. Michel Beine, Frederic Docquier and Hillel Rapoport (2008) examine the impact of high-skilled emigration on educational attainment in 127 developing countries. They find that a doubling of emigration among the highly educated is associated with a 5 percent increase in the proportion of the population with a tertiary education in the source country in the short run, and a 22.5 percent increase in the long run. These numbers suggest a substantial increase in educational attainment in response to high-skilled emigration, particularly in the long run. Using these estimated elasticities, Docquier and Rapoport (2012b) identify winners (those experiencing brain gain) and losers (those experiencing brain drain). Losers include small and medium-sized countries with emigration rates above 50 percent, such as islands in the Caribbean and Pacific. The winners are large countries, such as Brazil, China and India.

In the productivity channel, high-skilled emigrants abroad can return flows of income, investment and expertise or move back to the source country themselves

(i.e., return migration). These flows have a positive impact on total factor productivity (TFP). Enclaves in the receiving country diffuse technology to the sending country and increase TFP there. For most developing countries, adoption of technologies developed abroad, not home-grown innovation, is the main driver of technological progress. Network externalities between migrants abroad and the remaining residents in a sending country can enhance the sending country’s adoption of new technologies. In pursuit of such gains, some countries encourage high-skilled emigration and have programs to facilitate training for migration. These countries include China, Cuba, India, the Philippines, Sri Lanka and Vietnam (World Bank, 2006).

Studies have found a positive link between skilled immigration and FDI from the United States to the source country (Kugler and Rapoport, 2007; Javorcik et al., 2cm) and emigration and bilateral trade (Rauch and Trindade, 2002). In a study of 50 countries, Thanh Le and Philip Bodman (2cm) find evidence that technology transfers from high-skilled emigration boost economic development of less-developed countries. They find that remittances matter too, although the impact of technological diffusion on economic growth is larger than the pure transfer of funds.

Return migration (or brain circulation) can further boost the overall positive impact of TFP. Returnees tend to bring expertise that increases their productivity and the overall stock of human capital in their home country. In some regions of the world such as Eastern Europe, 25 to 50 percent of the increase in the human capital stock and wages due to migration is attributed to return migration (Mayr and Peri, 2017). Reasons for return migration vary, with many citing family reunification and salary incentives. While the data on return migrants worldwide is uneven at best, estimates based on U.S. Census data suggest 20 to 30 percent return rates for Eastern Europeans and Asians after 20 years in the United States. This rate appears to be much lower for people moving to the United States from Latin America (Mayr and Peri, 2017).

The transfer channel links emigration to remittances. Remittances relax households’ budget constraints and allow households to increase consumption, investment or savings or to pay off loans. If the funds are used for education, remittances may increase human capital formation and thereby ultimately boost economic growth in the home country. There also can be sizable funds brought back by returnees. If migrants have a targeted savings motive for migrating, they may return with funds to directly invest upon their return. (Theories and empirical evidence on remittances including targeted savings are discussed later in this chapter.)

Lastly, the institutional channel allows for feedback onto political, economic and social institutions in the home country. Better institutions may result in higher TFP. Furthermore, links between diasporas and the home country may boost the economy in the home country via increased trade and foreign direct investment. (Theory and empirical evidence on this channel are discussed later in this chapter.)

Other theoretical models suggest the production technology in the source country also can boost domestic human capital ifthere are complementarities between skilled and unskilled workers. Xiaofeng Fan and Akira Yakita (2011) find that while high wages for skilled workers in destination countries pull workers, the human capital investment of those left behind depends on the complementarities of skilled and unskilled workers in the source country. When skilled workers emigrate, they tend to leave a gap in production inputs. If skilled and unskilled labor are complements, as discussed in Chapters 7 and 8, unskilled workers have an incentive to improve their education and fill the position since wages increase as labor supply falls. Thus, the stock of human capital of a source country will likely increase, or create brain gain. However, substitutes in production are likely to result in brain drain.

There may also be complementarities in the destination countries. Highly educated workers tend to agglomerate in urban areas (Clemens, 2009). High-skilled migration is correlated with low-skilled migration since high-skilled migrants may bring low-skilled family members with them (Gibson and McKenzie, 2cm). In addition, networks in the destination country may reduce migration costs for both high- and low-skilled migrants alike.