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The brain drain: winners and losers.
Socio-economic effects of highly skilled migrations on both sending and host countries.
 

ALESSANDRO ALBANO
[University of Bari „Aldo Moro”, Italy]

Abstract:
The aim of this paper is to provide an overview of the most important theories on „brain drain” socio-economic effects both on sending and host countries. Therefore, all the main results of the analysis of three generations of Authors will be examined. So, this study will allow to understand which countries should have benefits from highly skilled migrations.

Keywords: Brain drain; migration; socio-economic effects; welfare; education level; labour market

Introduction

According to the literature, it can be assumed that the impact of brain drain on the concerned countries is positive for those who „import” highly qualified migrants and negative for the ones from which they flow. A careful examination of this literature should allow us to identify two types of approaches typically used in the study of this phenomenon. The first is sociological while the second is economical. The analysis of sociologists has been focused on identifying the socio-demographic differentials between the countries of origin and destination of highly skilled migrants in terms of push and pull factors¹. In particular, as regards the emigration countries, these works aim to:
• quantify the outflows;
• evaluate the impact of any return migration on the socio-economic structure of the country of departure;
• identifying the problem of employment systems in these countries often due to the mismatch between systems of university education and the labour market.

From the point of view of the host country, among the objectives that these contributions typically aim to achieve, there are:
• the analysis of integration processes in order to understand if highly skilled immigrants can experience a different kind of integration with regards to unskilled immigrants;
• research into socio-demographic information on the accumulation of migrants;
• the attempt to study the characteristics of links between these immigrants and, on the one hand, the host society in terms of the first contacts with businesses, employers, friends and family in the country of immigration, with other family members stayed in their country mainly through analysis on sending remittances.

The economic approach tends, however, to prioritize the analysis of the impact of this phenomenon, trying to understand whether they are positive or negative. In particular, for the countries of emigration, we consider the loss of human capital they had undergone. For the countries of immigration, however, we tend to compare the productivity of these skilled migrants with that of the natives, income levels and the impact of these migration flows entering the labour market.

This paper aims to analyse the contributions on the theme proposed in the literature through classification of Docquier and Rapoport² who identify three generations of studies that can be distinguished according to the theories of economic growth on which they rely. The first corresponds to the pioneering studies of the 60 skilled migration that had adverse effects on any of the countries involved in the phenomenon. The second generation, developed in the 70s, stands in sharp contrast to the first and assumes that the skilled migration have a negative impact on the countries of origin of flows. The third generation of studies, born during the ‘80s and ‘90s, uses, as a reference model, the endogenous growth theory which considers human capital as an engine of growth and a fundamental factor for the development of countries from which it originated and where it goes to settle.

1) Brain drain and its short/long-term effects: the contributions of ‘60s.
The work of the ‘60s (Grubel – Scott, 1966; Johnson, 1967) did not consider the brain drain as a „harmful” phenomenon for the population that remained in the country of origin because of the remittances that migrants sent to their countries of source: their amount allowed to offset the imbalance caused by the inevitable negative externalities of such migration in the country of departure.

The work of Grubel and Scott³ can be regarded as the „seminal paper” of this generation of scholars. These Authors argue that the income per capita is a very important measure of the wealth of a country and that is not absolutely obvious that the migration of workers can influence it. In particular, if the goal of a country is to maximize the disposable income of the population, migration could have positive effects for the country of origin under two conditions:
• who emigrate would increase their income;
• the departure of skilled workers would not reduce the income of those who remain.

As the departure of long-term workers increases the rate of capital / national work, there is a consequent increase in the income of those who remain in the country of origin. This conclusion can be considered as a general axiom. In the case of highly skilled migration, however, the patterns are more divided: if we assume perfect substitutability between physical and human capital, migration of these subjects becomes harmful for the country of departure if the human capital of those who emigrate is such that result in a significant loss in physical and human capital endowment of the country total. In this case, it reduces the income that is distributed to residents in the country of origin with a consequent reduction in the welfare of those who remain. According to the authors, however, we need to differentiate between the short and long term effects. The short-term losses are caused by the migration of workers already trained that must be replaced by unskilled workers. The loss of long-term reference, however, two important concepts: externalities – because skilled workers in their own country do not often receive a wage reflecting their level of skill and competence – and, consequently, the failures of market for the lack of contribution that these workers could offer.

2) Negative effects on the sending countries: the analysis of the ‘70s
The oil shocks of the early ‘70s and the subsequent currency crises led scholars to assess the „global” dimension of economic dynamics and imbalances – between developed and developing countries – they have caused. In this context, highly skilled migration has been particularly analyzed by scholars who emphasized the „social burden” especially when these migrants departed from less developed countries. Through a simple econometric model, Bhagwati and Hamada⁴ tried to demonstrate that a free international mobility of qualified workers leads at a lower level of human capital of the workforce and a gap between private returns and social returns to education. In this manner, within the country of origin, will generate adverse tax consequences because thanks to migration outflows, there would be a significant loss of taxpayers. The model shows that the emigration of qualified workers has adverse effects on national income, income per capita as well as on the unemployment rates of skilled and unskilled workers. This is because migration produces effects on the formation of expectations of wage of the first, pushes up the current salary of the latter and creates a process of leap-frogging that also causes an increase of the wages of seconds. Moreover, having lost, through the brain drain, a large share of taxpayers, the economy of the country of origin suffers from a lack of return on investments in education and cannot benefit from the positive externalities generated by the presence of skilled labour remained at home⁵. In light of all these reasons, Bhagwati and Hamada complete their analysis suggesting a recipe for limiting the negative effects of brain drain within the country of origin. This recipe is the imposition of a „tax on brain”. Both authors were perfectly in line with the research line that took the name of „New International Economic Order” (Cohn, 2003; Cobalti , 2006). The direct effect of such a measure would be the redistribution – in the form of income – from fees paid by those who emigrated to the agents who remain in the country of emigration; the indirect effect would occur on the level of unemployment, national income and per capita income but also on expectations of earnings. So, this form of taxation would consist in a form of reward for the countries of origin because of the loss of human capital⁶.

In the more recent demo-economic literature we can find many examples that support the empirical model of Bhagwati and Hamada with reference to the various areas it has taken into account: income differentials, impact of migration in countries of origin, return of „investment in training”, etc. Regarding income differentials, these contributions confirm the existence of huge wage differentials between skilled and skilled workers from developed to developing countries⁷. In addition, a survey done at the beginning of the last decade⁸ showed that, among highly skilled immigrants in the USA, most had a job and an income but, after migration and a consequent return home, it would experience a significant rise. This increase was on average 68% for men and 62% for women. In terms of the effects that the brain drain has had on countries of origin of such migration in the late ‘90s many studies taking as reference some local contexts emerging powers like India and noticed that these economic systems, which have experienced rapid development in computer sciences, they experienced a strong need for computer engineers at the same time suffering from a shortage of highly qualified personnel in that sector.

3) Brain drain effects in a „endogenous growth” context: papers from the ‘80s and ‘90s
Up to the ‘70s scholars’ attention was focused on the effects of brain drain. During the ‘80s, they began to investigate into the determinants of this phenomenon. Kwok and Leland⁹ reviewed the major underlying causes of the exodus of skilled persons from developing countries moving to more developed ones. As already mentioned (and as you might imagine), the case that more than any other influence on the choice of emigrating regard to income differentials: the developed countries attract qualified staff from developing countries as they are able to offer them an helping hand, greater opportunities for employment and higher wages. The new element introduced by the two authors was about the informational asymmetries in the labour market, which would rise to the decision of highly skilled individuals to leave their country. In the model developed, they take into account those migrants who decide to go abroad and stay in the same country in which they formed. So, the authors assume that employers in the country of origin have imperfect information about skills and abilities of these agents because they do not know the specialisation fields of their emigrants. Consequently, they are willing to offer them a salary based solely on the average productivity of returns. Employers of foreign country in which these migrants were formed, however, are perfectly aware of the educational system of these agents and the actual skills that it was able to transmit them. Therefore, they are able to provide them an adequate wage for that training. In this manner, the highly skilled who have trained outside their country, have a greater convenience to stay in the country where they have formed since this would allow them to earn a salary more profitable than they would earn in their country.

The concept of asymmetric information has been treated differently by Stark, Helmenstein and Prskawetz¹⁰, in a model that, in comparison to that of Kwok and Leland, introduced some new elements. In fact, it aimed to study the formation of human capital by comparing an economy open to migration and a closed economy, under the assumption of asymmetric information. The results of this analysis show that the expansion of opportunities granted to those who decide to emigrate, together with a well-calibrated incentives from governments of the countries involved, could transform brain drain into brain gain, defined as the growth of human capital that has in the country of origin due to emigration. There are two elements that make this model different from that previously postulated: first, the dynamism that characterizes the labour market and the inclusion of migrants that get their own, if any, qualifications before emigrating.

The technological innovation but also the effects of the increase in human capital on economic growth will constitute the key elements of the third strand of the studies of scholars who introduced the theory of endogenous growth in the debate on the effects of skilled migration. According to this theory, human capital is a form of „built-in knowledge, excludable and rival, which determines the possibility of obtaining a competitive advantage”¹¹. In other terms, human capital is regarded as the true engine of development. In fact, in a regime of increasing returns to scale, the increase in input produces externalities (in this case, skilled labour), resulting in the possibility of increasing the comparative advantage of economies which, thanks to better equipment of these inputs, grow faster. The migration of human capital, therefore, have a deep effect on the incomes of the country of origin and its economic growth. This flow of human capital could be the factor that can explain the differences between the growth rates of different countries¹². Despite the general consensus on the importance of human capital for economic growth, in this generation of studies deep divisions about the nature of the effects of brain drain went back. According to some authors¹³ the migration of the brains (indicated as „human capital flight”) may cause permanent limitation of income levels and, in the long run, a rise in growth rates higher for immigration countries than for emigration countries. Moreover, highly skilled migration reduces the growth rate of human capital of individuals who remain in the country of origin, creating a permanent reduction in the level of income per capita in the country of emigration, whose amplitude is proportional to population that migrates: the population that remains consists of individuals less skilled and thus accumulate less human capital than those who emigrated. In such a scenario, we wonder about what might be the best way to administrate this type of phenomenon in order to minimize the growth differentials between countries of departure and reception of skilled migration. Surely, education subsidies granted to less developed countries will have a positive effect only if targeted to basic education (primary and secondary) and not the higher. The risk of financial support for higher education is to increase the formation of the ablest that, in this manner, would be more competitive and – since there is a strong mobility of labour – more likely to emigrate. On the other hand, other authors, take into account the positive externalities produced by the accumulation of human capital, seeking to show that the brain drain may have beneficial effects. Mountford (1997) reflects on these effects and articulates his reasoning as follows:
• showing that the opportunity to emigrate to countries that offer higher wages can increase the performance of qualified individuals, resulting in an increase in formation of human capital which would mitigate the negative effects of brain drain;
• showing how the brain drain is crucial for the formation of an „educated class”.

With the model of Mountford¹⁴ a literature that took into account the beneficial effects of brain drain and examined the impact of the opportunity to migrate in a context of uncertainty was born. Vidal (1998), through its own model of economic growth, tried to demonstrate that emigration to a country where the return to human capital is greater than the country of origin, provides an incentive to invest in human capital inside of it: the level of long-term human capital is positively correlated with the probability of emigrating. High possibility to emigrate, also, may even bring the country of origin from the „trap” of underdevelopment. The work of Bein, Docquier and Rapoport¹⁵ provides an empirical support to Vidal (1998). Indeed, the authors distinguish two effects: the first ex ante, which define „brain effect” and the second, ex post, that they call „drain effect”. Thanks to the first effect, the prospect of emigrating promotes investment in education, encouraging the formation of human capital due to higher returns abroad. The second effect occurs because the most qualified, with these returns, decide to emigrate. So, the brain drain has positive effects when the first effect prevails over the second, in other terms when the average level of human capital in an open economy is higher than that in a closed economy.

Conclusions

Despite the interest that economists, compared to other scholars, have shown towards the issue of skilled migration, it remains an important demographic phenomenon although insufficiently examined and analyzed by experts in population. Like all the most important demographic phenomena (population growth, urbanization, demographic transition, etc..), it has evolved rapidly – in form and substance – especially during the course of the twentieth century. Just at this time, in fact, not only were redefined and redesigned several times – even on account of the succession of well-known and numerous historical events – the patterns and trajectories of territorial mobility of highly skilled but above all the impact that they have gradually taken within the countries involved has changed. However, the evaluation of these consequences is made complicated by the lack of reliable statistical information. The unreliability of data depends on the fact that it seems to lack a theoretical complete, organic and exhaustive definition on highly skilled migrants and, consequently, the entire phenomenon of the brain drain. Secondly, the lack of recognition at the international level, of migrants’ educational qualifications does not allow to have a satisfactory measure of the size and characteristics of these flows. All these problems have obviously had an impact on the analysis conducted on this particular segment of international migrants who often seem to be „neglected” by official statistical sources unless we have recourse to the use of ad hoc sample surveys. However, despite the critical issues highlighted so far, some analysts were able to identify the major effects that the brain drain has on the social structures of both the countries of emigration and immigration. The conclusions reached by these scholars are multiple and conflicting. The literature up to the ‘70s focused on the negative effects of migration. Brain drain was considered harmful to the development of countries of origin. The subsequent literature, based on models of economic growth, said that the possibility of emigrating leads individuals to educate themselves increasing the accumulation of human capital in the country of origin. In addition, if there is uncertainty about the probability of emigrating, workers will have incentives to accumulate human capital as much as possible in order to feel more capable of emigrating to a foreign country.

This positive aspect of higly skilled migration is confirmed by another strand of literature that analyzes the phenomenon of return migrations¹⁶.   These studies show that about 30.0% of those who emigrated return to their country return, on average, 15 years from the date of emigration. About 56.3% of these migrants have high qualifications. In particular, in some countries such as China and India, there are too many emigrants who return because the governments of these countries promises them a bonus if the experience they lived abroad brought them relevant professional successes. Such situations but also the results of the models proposed by authors such as Vidal¹⁷ and Bein, Docquier and Rapoport lead inevitably to the conclusion that the role of migration policies that have highly skilled migrants as target is particularly important not only to evaluate and better understand the phenomenon of brain drain but also to ensure that it will turn into opportunities for growth and development. In this case, we can indicate it as „brain gain”.

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ALESSANDRO ALBANO – Ph. D. University of Bari „Aldo Moro”, Italy.

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