What are the consequences for development of the most highly skilled migrating?

John Gibson, David McKenzie

Some argue that the global competition for talented workers leads to a “brain drain” robbing poor countries of their brightest sparks and stifling development. Others suggest that the local economy can benefit through trade, investment, and knowledge transfer. This column argues that for developing countries with the largest high-skilled migration, neither is spot on – by far the biggest impact is on the migrants themselves.

If you were born in the Pacific Islands or the Caribbean and have a university education, the chances are that you have moved abroad – well over half do so (Beineet al. 2008). High-skilled migration is also commonplace in a number of larger developing countries, especially in sub-Saharan Africa. In Ghana, 47% of those with a tertiary education live outside of the country (Docquier and Marfouk 2005).

Given such large numbers of high-skilled migrants abroad, it is perhaps no surprise that policymakers (and economists, e.g. Bhagwati and Hamada 1974) have been worrying for decades about whether this represents a loss in valuable human capital and fiscal revenues. Yet in more recent times a counterargument has emerged that the prospect of migration may induce additional human capital formation among those who remain, and that migrants can spur trade and investment, as seen in the experience of Taiwanese, Indian and Chinese migrants in Silicon Valley setting up technology firms back home.

What has been largely missing from this debate has been actual empirical evidence of how high-skilled migrants interact with their home countries, especially for the types of countries with the highest skilled-migration rates.

Evidence on the consequences of high-skilled emigration

In recent research (Gibson and McKenzie 2010, forthcoming) we use data from a multi-year, extensive survey to provide new evidence on the consequences of high-skilled migration. We focus on the “best and brightest” from five countries known for high- skilled migration, i.e. Ghana, Micronesia, New Zealand, Papua New Guinea, and Tonga. In each country we constructed a sample frame of the top high school students each year from 1976 to 2004, and then – painstakingly – tracked these individuals down to wherever they are in the world today, interviewing them about their migration histories and links with their home country if they live abroad.

Both migration and return migration rates for these individuals were very high. Figure 1 illustrates the migration pattern by age for Tonga. By age 35, over 80% have worked or studied abroad, although 25% have already returned.

Figure 1. Tongan top students: Migrant status by age



What then are the consequences of this migration for natives of these countries? Figure 2 summarises the results.

Figure 2. Net impact per migrant on different channels

Several key findings emerge:

The gains to the migrants by far dominate any other effect – the best and brightest stand to earn $40,000-$70,000 more per year by working abroad – which is at least two to three times as much as the developing country individuals would earn at home. Even accounting for differences in costs of living, this is a huge gain and benefit of migration for these individuals.

Trade and investment is rare, and the net effect is relatively small. The figure shows the total value of additional trade and investment migrants bring. Moreover, the value-added of this trade creation will depend on the profit margin of the trade deals – if this is only 10-25% of the transaction value, the mean effect will reduce to $500-$1000 per migrant in Ghana, and smaller in Micronesia and Tonga.

The high-skilled from developing countries do remit, typically sending around $5,000 per year. These amounts are large relative to per capita incomes in their home countries, but less than they would have earned at home.

The net fiscal cost depends strongly on the progressivity of the tax code. Countries like Ghana and Papua New Guinea which have highly progressive tax rates and spend small amounts on public services per citizen suffer larger fiscal losses than countries like Tonga and Micronesia with flatter tax rates.

Aggregating these effects up, the effects of remittances, trade, investment, and repatriated savings typically more than offset the fiscal cost, and on top of this, the migrants themselves have seen enormous benefits from migration. In order for this high-skilled migration to have a net negative effect on development, one would therefore require very large externalities from the presence of these individuals. Based on current economic evidence of externalities, we instead estimate the externalities to be at most $800 per year – or only 2% of the private gains.

Conclusions

Our findings question both the pessimistic view that high-skilled migration hurts development, and the optimistic view that most countries can benefit to the extent Taiwan, China and India have from trade and investment flows. For most countries, the first-order effects are mostly an individual phenomenon – individuals stand to gain a lot from migration, and the second-order effects on others are small in comparison and seem to at least balance one another out if not also be a net positive. In the absence of compelling evidence for massive externalities from their presence, we argue governments should not be so concerned about high rates of skilled emigration, but focus instead on the basics of providing the policy environment needed to foster growth and innovation at home.

References

Beine, Michel, Frederic Docquier, and Maurice Schiff (2008), “Brain Drain and its Determinants: A Major Issue for Small States”, IZA Discussion Paper 3398.



Bhagwati, Jagdish and Koichi Hamada (1974), “The brain drain, international integration of markets for professionals and unemployment: a theoretical analysis”, Journal of Development Economics, 1(1-2): 19-42.

Docquier, Frederic and Abdeslam Marfouk (2005), “International Migration by Education Attainment 1990-2000”, 151-99 in C Özden and M Schiff (eds.) International Migration, Remittances and the Brain Drain. Palgrave MacMillian.

Gibson, John and David McKenzie (2010), “The Economic Consequences of “Brain Drain” of the Best and Brightest: Microeconomic Evidence from Five Countries”, World Bank Policy Research Working Paper 5394

Gibson, John and David McKenzie (forthcoming), “The Microeconomic Determinants of Emigration and Return Migration of the Best and Brightest: Evidence from the Pacific”, Journal of Development Economics.