Operation Triton rescue mission, 2015
In today’s era of globalization, migration affects virtually every country, rich or poor. Much of the migration discourse, however, is predominantly focused on how immigration affects rich countries, while emigration’s effect on poor, migrant-sending countries has received very little attention. While there is now a widespread agreement amongst economists on the net benefits of migration for destination countries, no such consensus exists regarding the relationship between emigration and development in poor countries. Indeed, the developing world is increasingly concerned that too many of its skilled and educated citizens are moving abroad. This exodus of the best and the brightest — the so-called “brain drain” — is supposedly depleting the stock of human capital of poor countries and hurting their prospects of economic development.
This concern is not unsubstantiated. Since the 1960s, the world has seen increasing levels of migration from low-income to high-income countries. Research has shown that for virtually every migrant-sending country, the skilled emigration rate is substantially higher than the average emigration rate. This means that poor countries have experienced a huge outflow of skilled workers in the past half-century. Empirical observations indicate that this phenomenon is particularly pronounced for developing countries with relatively low populations. For instance, 85 percent of Haitian college graduates are working abroad, as compared to 5 percent of educated Indians or Chinese.
When emigration is understood in terms of the immediate brain drain it results in, this scenario indeed looks very gloomy for low-income countries. But it is a mistake to understand emigration in this way. Contrary to the intuition of brain drain, the long-term interaction between emigrants and their countries of origin has huge potential for the development of poor, migrant-sending countries. Because emigration can improve the prospects of the origin nation, developing countries should cease efforts to limit skilled emigration and seek to realize the development potential presented by emigration.
Brain Gain, Not Brain Drain
In spite of the initial brain drain, the outflow of skilled and educated citizens from poor countries can actually have a positive overall impact on the human capital stock of these countries. Since the 1980s, many developed countries have introduced selective immigration policies that favor highly skilled and educated candidates. Consequently, people in poor countries view educational attainment as a path to emigrate to developed countries. Thus, the prospect of future emigration incentivizes them to spend more on education than they would have done otherwise. In this way, skilled emigration can induce an increase in the rate of human capital accumulation. In emigration economics parlance, this phenomenon is called “brain gain.”
Skilled emigration from Cape Verde is a curious case in point. Despite losing two-thirds of its skilled citizens to emigration, Cape Verde’s human capital stock and rate of educational attainment is growing at a fast rate. One study views this apparent contradiction as evidence of brain gain, estimating that the number of university graduates living in Cape Verde would have been 40 percent lower had there been no possibility of emigrating.
Another island nation, Fiji, has also seen an increase in human capital accumulation in a similar way. A study based on a natural experiment found that an increase in the rate of emigration of tertiary-educated Fijians caused an increase in the stock of tertiary-educated people in Fiji. Thus, even if nations lose a fraction of their educated populace to the immediate brain drain, the net effect can be positive due to an eventual increase in education levels across the country.
The concept of brain drain also ignores the effect of resource availability. In the words of Professor Jagdish Bhagwati of Columbia University, “The ‘brain’ is not a static concept.” Even if skilled people do not emigrate, poor countries will benefit very little because these countries lack the technology and institutions to absorb their human capital. According to the data from the World Intellectual Property Organization, innovators from poor countries are much more likely to file patents while they are abroad than at home. For example, 86 percent of the patents filed by Vietnamese between 2007 and 2012 were filed when they were working abroad. Had these Vietnamese innovators not moved abroad, their level of innovation would have likely plummeted, as productivity has more to do with place than with people. Rather than causing brain drain, skilled emigration is preventing “brains” from draining away in unproductive lands.
Flow of People, Flow of Money
When people from poor countries migrate to rich ones, their real income increases severalfold because of productivity gains from new technology, norms, and institutions. The benefits that accrue from this increase in migrant productivity are enjoyed not only by destination countries and the migrants themselves, but also by source countries. This is due in part to remittances, where migrants send a significant portion of their income back home to their loved ones. According to the World Bank, developing countries received about $441 billion in remittances in 2015, a number three times larger than the size of official development assistance. In countries such as Tajikistan, the Kyrgyzstan, Nepal, Tonga, and Moldova, remittances represented more than 25 percent of GDP in the same year.
Syrian refugees in Iraq, 2017
The crucial role of these remittances in alleviating poverty in developing countries is indisputable. Remittances provide poor families the wherewithal to afford basic necessities like food, shelter, clothing, and education. Furthermore, they act as an insurance for these families against unexpected adversities. In the aftermath of natural disasters in home countries, migrants usually remit more money than usual, easing the reversion to normalcy. In addition to poverty alleviation, remittances can also contribute directly to economic development. When directed toward productive investment like business and higher education, remittances can positively affect the long-run economic performance of poor countries.
The interaction between emigrants and their home countries also has trade- and investment-boosting effects. By bridging the cultural and institutional gap between countries, migrant and diaspora networks reduce the transactions costs of bilateral trade by acting as intermediaries. Migrants might also show a preference for certain goods and services from their home country, thereby increasing exports from home country to host country. Foreign direct investment is also similarly boosted by emigration. For example, one study has found a strong positive relationship between the amount of U.S. foreign direct investment a developing country receives and its stock of college graduates living in the United States.
In short, when the best and brightest from poor countries emigrate, those left behind benefit in myriad ways. James E. Rauch, a professor of economics at the University of California San Diego who has studied the effects of migration on bilateral trade, explained to the HPR that “the trade boosting effects of emigration, combined with the flow of remittances, more than offset the effects of brain drain.” Given the benefits of skilled emigration, it is time for policymakers in migrant-sending countries to rethink the relationship between migration and development.
Policy for Progress
If brain gain, remittances, and strengthened economic ties make skilled emigration crucial to realizing the emerging world’s development dreams, then developing countries should create policies to promote these benefits. One of the areas that beg such policy intervention is remittance flows. On average, migrants pay about 10 percent in transaction fees while remitting money. By encouraging competition in the money transfer market, slashing bureaucratic regulatory requirements, and fostering the use of technology, governments can reduce the transaction fees so that more money flows to the migrants’ families. More importantly, in order to maximize the development benefits of remittances, policymakers should create incentives and devise mechanisms to ensure that remittances contribute to human and physical capital accumulation.
Developing countries should also do more to leverage their migrant and diaspora networks. These networks can not only have positive effects on bilateral trade and investment, but also facilitate the transfer of knowhow and technology to origin countries. The Indian diaspora, for instance, has been crucial in the development of information technology industry in India. In order to realize this enormous potential, origin countries should establish a strong connection with their diasporas by encouraging frequent interactions. “The most important thing the sending countries can do is make sure the emigrants regularly travel back and feel comfortable about exploring opportunities,” said Rauch. Origin country governments can also set up incentives for their diaspora to establish businesses, such as exemptions from certain regulations.
Policymakers in the developing world should also try their best to entice the emigrants back to their native countries permanently. Young people that emigrate to developed countries, acquire education and experience, and then return home add to the stock of human capital and promote entrepreneurialism in their home countries. A study of returning Turkish migrants from Germany finds that about half of them started their own business following the return. Likewise, returnees from advanced democracies can act as an often-needed voice for good governance.
To encourage return migration, developing nations can learn from the example set by China. Since the beginning of this century, China has seen an increasing rate of return migration. Chinese policymaking has supported this trend. “In order to attract the emigrants back, a government should have a talent plan which should be matched with the economic plan,” Huiyao Wang, president of the Center for China and Globalization, told the HPR. In China, the government has established talents programs and returnee entrepreneurial start-up parks, all aimed at encouraging emigrants to return and contribute to economic development. While return migration in China is more a consequence than a cause of development, it offers a great example on how return migration can be aligned with the country’s development goals.
By encouraging return migration, bolstering the connection with migrant networks, and facilitating the flow of remittances, origin country governments can integrate migration into their development efforts. But this needs to be preceded by the realization on the part of policymakers in poor countries that despite the initial brain drain, skilled emigration can contribute to long-run economic development. “Emigration has been a part and parcel of the development process of essentially every country that has succeeded in developing,” Michael Clemens, a senior fellow at the Center for Global Development and a leading expert on emigration economics, told the HPR. Rather than an impediment to development, skilled emigration should be understood as an opportunity for poor countries to realize their development dreams.
Image credit: Irish Defense Forces / Wikimedia Commons // Levi Clancy / Wikimedia Commons