THE BRAIN DRAIN + Frédéric Docquier a and Hillel Rapoport b. FNRS and IRES, Université Catholique de Louvain

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1 THE BRAIN DRAIN + Frédéric Docquier a and Hillel Rapoport b a FNRS and IRES, Université Catholique de Louvain b Department of Economics, Bar-Ilan University, EQUIPPE, Universités de Lille, and Center for Research and Analysis of Migration (CReAM), University College London October 2006 A new entry for the New Palgrave Dictionary of Economics (second edition) Abstract. The term brain drain designates the international transfer of human resources and mainly applies to the migration of relatively highly educated individuals from developing to developed countries. While the brain drain has long been viewed as detrimental to poor country s growth potential, recent economic research has emphasized a number of positive feedback effects and shown that migration prospects may foster human capital formation at origin. The total effect is therefore uncertain. Empirically, the first studies to address this issue point to a strong negative total effect for most developing countries; however, a handful of large, middle-income developing countries seem to experience moderate gains. + Addresses for correspondence: Frédéric Docquier, IRES, Department of Economics, Université Catholique de Louvain, 3, Place Montesquieu, B-1348 Louvain-La-Neuve, Belgium. docquier@ires.ucl.ac.be. Hillel Rapoport: Department of Economics, Bar-Ilan University, Ramat Gan, Israel. hillel@mail.biu.ac.il. 1

2 The term brain drain designates the international transfer of resources in the form of human capital and mainly applies to the migration of relatively highly educated individuals from developing to developed countries. In the non-academic literature, the term is generally used in a narrower sense and relates more specifically to the migration of engineers, physicians, scientists and other very highly skilled professionals with university training. The brain drain has long been viewed as a serious constraint on poor countries development and is also a matter of concern for many European countries such as the U.-K., Germany or France, which have recently seen a significant fraction of their talented workforce emigrate abroad. Recent comparative data reveal that by 2000 there were 20 millions highly skilled immigrants (i.e., foreign-born workers with tertiary education) living in the OECD area, a 70% increase in ten years against only a 30% increase for unskilled immigrants. These highly-skilled immigrants come mainly (for two-thirds of them) from developing and transition countries and represent a third of total immigration to the OECD. The causes of this growing brain drain are well known. On the supply-side, the globalization of the world economy has strengthened the tendency for human capital to agglomerate where it is already abundant and contributed to increase positive self-selection among migrants. And on the demand side, host countries have gradually introduced quality-selective immigration policies and are now engaged in what appears as an international competition to attract global talent. 1. How big is the brain drain? Extending and updating the work of Carrington and Detragiache (1998), Docquier and Marfouk (2006) recently collected OECD immigration data to construct estimates of emigration rates by educational attainment (primary, secondary and tertiary schooling) for all the world countries in 1990 and Their estimates for the highest education level may be taken as a brain drain measure. This may seem too broad a definition for the most advanced countries where the highly educated typically represent about a third of the total workforce but seems appropriate in the case of developing countries, where this share is on average just about 5%. Note that due to data constraints, South-South migration is not taken into account in the Docquier and Marfouk (2006) data set; this can lead to potential under-estimation of the brain drain for some countries for which other developing countries are significant destinations. On the other hand, the very definition of immigrants as foreign-born workers does not account for whether education has been acquired in the home or in the host country; this can lead to potential over-estimation of the brain drain as well as to possible spurious 2

3 cross-country variation in skilled emigration rates (Rosenzweig, 2005). In an attempt to solve this problem, Beine et al. (2006a) used age of entry as a proxy for where education has been acquired and proposed alternative brain drain estimates excluding people who immigrated before a given age (12, 18 and 22); their results show country rankings by degree of brain drain intensity only mildly affected by the correction and extremely high correlations between corrected and uncorrected estimates. Keeping this in mind, one can use a simple multiplicative decomposition of the brain drain: Skilled emigration rate = Average emigration rate x Schooling gap. The first component is the ratio of emigrants to natives (residents + emigrants) and reflects the sending country s openness to emigration; the second component is the ratio of skilled to average emigration rate. Table 1 summarizes the data for different country groups in Countries are grouped according to demographic size, income per capita (using the World Bank classification), and region. Unsurprisingly, we observe a decreasing relationship between emigration rates and country size, with average skilled emigration rates about seven times higher in small countries than in large countries. Regarding income groups, the highest emigration rates are observed in middle-income countries, where people have both the incentives and means to emigrate. Regarding the regional distribution of the brain drain, the most affected regions are the Caribbean and the Pacific islands, Sub-Saharan Africa (where the schooling gap is exceptionally high), and Central America. 3

4 Table 1. Data by country group in 2000 Skilled emig. rate Average emig. rate Schooling gap By country size Large countries (Pop>25 million) 4.1% 1.3% Upper-Middle (25>Pop>10) 8.8% 3.1% Lower-Middle (10>Pop>2.5) 13.5% 5.8% Small countries (Pop<2.5) 27.5% 10.3% By income group High Income countries 3.5% 2.8% Upper-Middle Income countries 7.9% 4.2% Lower-Middle Income countries 7.6% 3.2% Low Income countries 6.1% 0.5% By region AMERICA 3.3% 3.3% USA and Canada 0.9% 0.8% Caribbean 42.8% 15.3% Central America 16.9% 11.9% South America 5.1% 1.6% EUROPE 7.0% 4.1% Eastern Europe 4.3% 2.2% Rest of Europe 8.6% 5.2% incl. EU15 8.1% 4.8% AFRICA 10.4% 1.5% Northern Africa 7.3% 2.9% Sub-Saharan Africa 13.1% 1.0% ASIA 5.5% 0.8% Eastern Asia 3.9% 0.5% South-central Asia 5.3% 0.5% South-eastern Asia 9.8% 1.6% Near and Middle East 6.9% 3.5% OCEANIA 6.8% 4.3% Australia and New Zealand 5.4% 3.7% Other Pacific countries 48.7% 7.6% Source: Docquier and Marfouk (2006) It is clear that the magnitude of the brain drain has increased dramatically over the last few decades. However, in terms of intensity (or emigration rates), the picture is less clear as one must factor in the general progress in educational attainments observed all over the world. Figure 1 presents the skilled emigration rates by region computed by Defoort (2006) using a long run perspective. Focusing on the six major destination countries (USA, Canada, Australia, Germany, UK and France), she computed skilled emigration rates from 1975 to 2000 (one observation every 5 years). One can see that some regions experienced an increase in the intensity of the brain drain (especially Central America and Sub Saharan Africa) while significant decreases were observed in others (notably the Middle East and Northern Africa). 4

5 Figure 1. Long-run trends in skilled emigration 18% 16% Central America 14% 12% 10% Sub-Saharan Africa South-East Asia 8% 6% 4% 2% Middle East Eastern Asia Eastern Europe Northern Africa South-Cent Asia South America 0% From brain drain to brain gain? It is certainly a good thing for rich countries to integrate a skilled and talented workforce, and the move is also worthwhile (at least ex ante) from the perspective of the individual migrant. However, the social return to human capital is likely to exceed its private return given the many externalities (fiscal, technological, and Lucas-type) involved. This externality argument is central in the early brain drain economic literature (Bhagwati and Hamada, 1974), which emphasized that the brain drain entails significant losses for those left behind and contributes to increase inequality at the world level. Another negative aspect of the brain drain is that it can induce shortages of manpower in certain activities, for example when engineers or health professionals emigrate in disproportionately large numbers, thus undermining the ability of the origin country to adopt new technologies or deal with health crises. This can be reinforced by governments distorting the provision of public education away from general (portable) skills when the graduates leave the country, with the country ending up educating too few nurses, doctors, or engineers, and too many lawyers (Poutvaara, 2004). The argument, however, can be reversed as the prospect for migration may create a bias in the opposite direction (see Lucas (2005) for an illuminating analysis of Philippines high education market). 5

6 The prospect of migration can also impact on the very decision as to whether to study. When education is a passport to emigration, migration prospects create additional incentives to invest in human capital; if migration is probabilistic in that people are uncertain about their chances of future migration when they make education decisions, then under certain circumstances described in a series of recent theoretical papers (e.g., Mountford, 1997, Beine et al., 2001), this can be turned into a gain for the source country. This has been confirmed empirically by Beine et al. (2006b), who found a positive and significant effect of migration prospects on human capital formation in a cross-section of 127 developing countries. From the latter s perspective, however, what matters is not how many of their native-born engage in higher education, but how many remain at home. To estimate country-specific net effects, Beine et al. (2006b) used counterfactual simulations and found that countries combining relatively low levels of human capital and low skilled emigration rates are likely to experience a net gain. There appears to be more losers than winners; more importantly, the former incur substantial losses while the latter exhibit only small gains. The situation of many small African and Central American countries appears extremely worrisome. In contrast, the largest developing countries all seem to experience moderate gains. 3. Feedback effects Remittances. The literature on migrants remittances shows that the two main motivations to remit are altruism, on the one hand, and exchange, on the other hand (Rapoport and Docquier, 2006). Altruism is primarily directed towards one's immediate family, while remittances motivated by exchange pay for services such as taking care of the migrant's assets or relatives at home. Such transfers are typically observed in case of a temporary migration and signal the migrants' intention to return. It is therefore a priori unclear whether educated migrants remit more than their uneducated compatriots; the former may remit more to meet their implicit commitment to reimburse the family for funding of education investments (and, in addition, they have a higher income potential), but on the other hand, they tend to emigrate with family, and on a more permanent basis. Indeed, at an aggregate level, Faini (2006) finds that brain drain migration (as measured by the proportion of skilled among emigrants) is associated to lower remittance inflows. Return migration and brain circulation. Return migration is seldom among the highly educated unless sustained growth precedes return. For example, less than a fifth of Taiwanese and Korean PhDs who graduated from US universities in the 1970s in the fields of Science 6

7 and Engineering returned to Taiwan or Korea, a proportion that rose to two-thirds in the course of the 1990s, after two decades of impressive growth in these countries. The figures for Chinese and Indian PhDs graduating from US universities in the same fields during the 1990s are fairly identical to what they were for Taiwan or Korea 20 years ago (OECD, 2002). These numbers suggest that return skilled migration is more a consequence than a trigger of growth. However, a recent survey conducted among 225 Indian software firms showed clear signs of brain circulation, with per cent of the higher-level employees have relevant work experience in a developed country (Commander et al., 2004). Diaspora externalities. A large sociological literature emphasizes the potential for skilled migrants to reduce transaction and other types of information costs and thus facilitate trade, FDI and technology transfers between their host and home countries. This has first been confirmed in the field of international trade (Gould, 1994, Head and Ries, 1998, Rauch and Casella, 2003). Regarding FDI, Kugler and Rapoport (2006) used U.S. data on immigration and FDI outflows and found that past skilled immigration significantly increases a country s chances to attract FDI in the subsequent period. These results complement recent case-studies of the software industry showing that skilled migrants take an active part in the creation of business networks which lead to FDI deployment in their home country (Arora and Gambardella, 2005). 4. Conclusion The number of skilled migrants from poor to rich countries has increased dramatically over the last decades. In the face of rising wage differentials and of diverging demographic structures between rich and poor countries, this tendency is likely to be confirmed in the future. While the brain drain has long been viewed as detrimental to poor country s growth potential, recent economic research has emphasized that alongside positive feedback effects arising from skilled migrants participation to business networks, one also has to consider the effect of migration prospects on human capital building in source countries. This new literature suggests that a limited degree of skilled emigration could be beneficial for growth and development. Empirical research shows that this is indeed the case for a limited number of large, intermediate-income developing countries. For the vast majority of poor and small developing countries, however, current skilled emigration rates are most certainly well beyond any sustainable threshold level of brain drain. 7

8 References Arora, A., and A. Gambardella, eds. (2005): From Underdogs to Tigers: The Rise and Growth of the Software Industry in Brazil, China, India, Ireland, and Israel, Oxford and New York: Oxford University Press. Beine, M., F. Docquier and H. Rapoport (2001): Brain Drain and Economic Growth: Theory and Evidence, Journal of Development Economics, 64, 1: Beine, M., F. Docquier and H. Rapoport (2006a): Measuring the international skilled migration: new estimates controlling for age of entry, World Bank Research Report, July. Beine, M., F. Docquier and H. Rapoport (2006b): Brain drain and human capital formation in developing countries: winners and losers', IRES Discussion Paper No , May. Bhagwati, J.N. et K. Hamada (1974): The brain drain, international integration of markets for professionals and unemployment, Journal of Development Economics, 1, 1: Carrington, W.J. and E. Detragiache (1998): How big is the brain drain?, IMF Working paper No Commander, S., R. Chanda, M. Kangasniemi and L.A. Winters (2004): Must skilled migration be a brain drain? Evidence from the Indian software industry, IZA Discussion Paper No Defoort, C. (2006) : Tendances de long terme en migrations internationales: analyse à partir de 6 pays receveurs, Mimeo., EQUIPPE, Universités de Lille, and IRES, Université Catholique de Louvain. Docquier, F. and A. Marfouk (2006) : International migration by educational attainment ( ), in C. Ozden and M. Schiff, eds., International migration, remittances and the brain drain, Chapter 5, Palgrave-Macmillan. Faini, R. (2006): Remittances and the brain drain, IZA Discussion Paper No 2155, June. Gould, D.M. (1994): Immigrant links to the home country: empirical implications for U.S. bilateral trade flows, Review of Economics and Statistics, 76, 2: Head, K., and J. Ries (1998): Immigration and trade creation: econometric evidence from Canada, Canadian Journal of Economics, 31, 1: Kugler, M. and H. Rapoport (2006): International labor and capital flows: complements of substitutes?, Economics Letters, forthcoming. Lucas, R.E.B. (2005): International Migration and Economic Development: Lessons from Low- Income Countries, Cheltenham: Edward Elgar Publishing. Mountford, A. (1997): Can a brain drain be good for growth in the source economy?, Journal of Development Economics, 53, 2: OECD (2002): Trends in international migration, Paris: OECD Editions. Poutvaara, P. (2004): Public education in an integrated Europe: Studying to migrate and teaching to stay, CESifo Working Paper No Rapoport, H. and F. Docquier (2006): The economics of migrants' remittances, in S.-C. Kolm and J. Mercier Ythier, eds.: Handbook of the Economics of Giving, Altruism and Reciprocity, Amsterdam: North Holland, Chapter 17. Rauch, James E., Casella, Alessandra (2003): Overcoming informational barriers to international resource allocation: Prices and Ties, Economic Journal, 113, 484: Rosenzweig, M.R. (2005): Consequences of migration for developing countries, Paper prepared for the UN conference on international migration and development, Population Division. 8