2011 02-07 - Can Africa possibly get a positive return on brain drain?

“Is the Brain Drain Good for Africa?” Easterly, W., Nyarko, Y., (2010). (chapter in Skilled Immigration Today: Prospects, Problems, and Policies, edited by Jagdish Bhagwati and Gordon Hanson) Prepared by: Rachel Lund Miguel SantosIs the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 1

It is widely believed that brain-drain has negative effects on poor/developing countries… The case for putting a halt to brain drain • Skills are necessary for long-run development in source country • Skills are necessary for long-run development in source country • Human capital of migrants may have had positive effects on • Human capital of migrants may have had positive effects on income or growth rates of those left behind (had they stayed) income or growth rates of those left behind (had they stayed) • Human capital of migrants may have had a positive effect on • Human capital of migrants may have had a positive effect on institutions/political leadership of home society (have they stayed) institutions/political leadership of home society (have they stayed) • Family separation resulting from migration may be costly from a • Family separation resulting from migration may be costly from a non-monetary standpoint non-monetary standpoint These beliefs have inspired multilateral organizations to issue a call to restrict or even ban active recruitment among developed countries…Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 2

The African Brain Drain in Context Skilled emigrants / (Skilled emigrants + skilled residents) Emigrants / (Emigrants + residents) 49% 50% 45% 43% 40% 13 times more likely to 35% emigrate if 30% skilled (highest in the world) 25% 20% 17% 15% 15% 13% 12% 10% 9% 8% 7% 7% 5% 5% 4% 5% 5% 4% 5% 4% 5% 2% 1% 1% 2% 2% 3% 1% 1% 0% Australia/New Caribbean Eastern Europe Eastern Asia Ocenia Mexico/Central Sub-Saharan Africa Rest of Europe Northern Africa South America World Western Asia North America Zealand America Source: Docquier and Marfouk (2005)Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 3

Could poor/developing countries possibly obtain a benefit from brain drain? The case for letting brain drain happen without restrictions • Migrants are themselves better off • Migrants are themselves better off • Remittances • Remittances • Family members left behind may have indirect utility from greater • Family members left behind may have indirect utility from greater well being of migrants well being of migrants • Home country population may have stronger incentives to invest in • Home country population may have stronger incentives to invest in human capital if they can migrate human capital if they can migrate • Migrants can have an impact on politics/institutions from abroad • Migrants can have an impact on politics/institutions from abroad • Migrants may return and bring technology/facilitate trading • Migrants may return and bring technology/facilitate trading network that increase source-country exports network that increase source-country exports Key consideration: The main object of development thinking should not be nation-states, but rather nationals: “No reason to ignore the benefits accruing from a given policy to a Tanzanian who is no longer in Tanzania”Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 4

What is the goal: Undermine from a theoretical and empirical standpoint the received wisdom about brain drain • Brain drain does not explain the skill gap in Africa • Considering the welfare of all nationals, individuals and their families may be better off as a consequence of brain drain • Remittances more than compensate for the high cost of educating brain-drainers in Africa • Brain drain provides incentives for human capital accumulation: Skill creation offset loss of skills • Brain drain does not have an impact on economic growthIs the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 5

Brain drain does not explain the skill gap in Africa Skilled residents / All residents Skilled emigrants / All residents Counterfactual 2% 20% 18% 2% 13% 11% 2.8% 0.4% 3.2% Sub-Saharan Africa Mexico/Central America Europe (excluding Eastern Europe)Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 6

What do the authors argue? • Brain drain does not explain the skill gap in Africa • Considering the welfare of all nationals, individuals and their families may be better off as a consequence of brain drain • Remittances more than compensate for the high cost of educating brain-drainers in Africa • Brain drain provides incentives for human capital accumulation: Skill creation offset loss of skills • Brain drain does not have an impact on economic growthIs the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 7

A Simple Theoretical Model for Evaluating Brain Drain Settings and Assumptions • Two generations: Young & old (one static period exercise) • Government has resources G which will spend in two different activities: Infrastructure/roads (H) and education (e): G = H + e • ψ = Ψ (e) : fraction of the young who will be educated when education spending is e (logically increasing on e) • Of the educated people d will be drained off to foreign countries, while (1-d) will remain in home country • Educated young who do not drain will produce public goods: The exact quantity will depend on infrastructure and the total number of educated young people available: y = f (G − e, (1 − d )ψ ) (only educated people produce public goods)Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 8

What are the expected payoffs to each generation? Young generation: Three types • ψ d : Educated and drain receive as payoff an income W in the countries where they work; but they also send remittances R to their families back home • ψ (1 − d ) : Educated and remain in home country with payoff cy (where c denotes skill premium) • (1 − ψ ) : Not educated will be modeled as having utility or payoff y • A typical person who does not know yet what type of young they will end up being has the following expected income: u Y = ψd (W − R ) + ψ (1 − d )cy + (1 − ψ ) y Old generation: Receives an income equal to y plus remittances R. In expected values: u O = y + ψdR Additionally: All young care about their parents utility and vice-versa, by factors δ Y , δ O , respectively. Taking this into account, ex-ante utility levels are: U Y = uY + δ YU O U O = u O + δ OU YIs the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 9

Does an increase in d help or hurt everyone in the economy? • Note that if: y = f (G − e, (1 − d )e) , then ∂y / ∂d = − f e : There will be a negative effect on the production of public goods • There will be an effect on the utility of the young composed of two elements: ∂u Y = −{ f e [ (1 − d ) c + (1 − ψ ) ]} + {[ (W − R ) ] − [ cy ]} ψ ψ ψ ∂d Negative impact on Increased chance of draining public goods y, applying (affects only the educated) to those staying increases expected income • If the wage W of those who drain is high enough and ψ is sufficiently large, then increasing d will have a net positive effect • Regarding the old generation, the change in d will have three effects: o On the utility of the young they care about (+) o On remittances (+) o On the provision of public goods (-) • It is unlikely that the negative effect on y would be higher than positive effects on utility of the young and R (is not obvious that the net effect of d is negative)Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 10

What is the optimal investment in education (ψ )? For the young generation: ∂u Y = d (W − R) + (1 − d )cy − y + [ (1 − d )c + (1 − ψ )] dy ψ ∂ψ dψ Direct impact on utility for Impact on income, applied each group of young people to the groups staying at home • When d and W are too high relative to y (as it is expected to be in many poor countries) this derivative will be positive For the old generation it can de shown that: ∂U O  O ∂u Y ∂u O  1 = κ δ + dR  κ= ∂ψ   ∂ψ ∂ψ   where (1 − δ O δ Y ) ∂u Y • If the old care about the young and ∂ψ is positive, then the derivative above will be positive (even if R=0)! If the old generation is a decision maker on the fate of the young generation, they will also set ψ to be large (in spite of d)Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 11

How big do remittances have to be? • The cost of producing brains in Africa is very high: Unit cost of tertiary education (% of per-capita GNP) averages 8.6 in Africa, 1.2 in Asia, 0.9 Latin America, 0.5 developed countries (Hinchliffe, 1987) Cost Benefit Cost of tertiary education NPV of annual remittances Ghana: 6X GNP per capita @5% discount = 20R 6 x 450 = US$2,700 Cost = Benefit if R = US$135 or 30% GDP per cap. Estimated remittances per (drained) capita = US$600Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 13

Could drain brain have a positive effect on the stock of skilled labor at home? • H (total skilled L) =HD (Skilled L staying at home) + HF (Skilled L abroad) dHD dH dHF = − H H H • Assume formation of new skilled labor depends on population growth but also on the possibility of emigration: dH dHF , substituting above leads to: dHD = a + bn + (c − 1) dHF = a + bn + c H H H H • The authors run this regression: - using a number of instruments for dHF/H to address reverse causality and omitted factors affecting both H and HF: Most significant instruments distance from main destination countries (US, UK, France) and log of population by 1990 - measuring changes (d) between 1990-2000 • Coefficient for dHF/H is positive, “indicating that brain drain has a positive effect in the stock of skilled people left at home”, but not significant • Authors reject (c-1) being -1, so c is significantly different from zero: This does not necessarily prove that replacement occurs on a one to one basisIs the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 15

Does brain drain negatively affects growth at home country? • Authors apply growth accounting, and find no negative effects of brain drain on GDP growth • As poor growth can also lead to brain drain (reverse causality), authors tried instruments and then ran second stage regressions, but in this case instruments did not pass weak-instruments test.Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 17

In summary √ The authors cast some doubt on the conventional wisdom on brain drain having negative effects in poor countries √ Theory and empirics suggest that the ability of some brains in the country to drain has had a net positive effect on individuals staying √ Fail to find negative effect of brain drain on the stock of skills remaining in source country: Skill creation incentives offset loss of skills (weak result) √ Fail to find any negative effect of brain drain on economic growth (very weak result)Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 18

Discussion / Talking points √ Ghost countries? If the argument is true d → 1 : How education – as a public good - will be “produced”? (“One would expect the government to impose restrictions if populations started leaving in such numbers that the remainder begins to approach zero”) √ No externalities of education into the home society are taken into account as negative effects of brain drain √ Neither are the effects of brain drain on income distribution taken into account, as the candidates for brain drain may be coming from the elite class (which does not need remittances to survive) while the rest of the people without access to the population receiving the negative effects of brain drain (loss of output) and none of the benefits (remittances, higher expected income)Is the Brain Drain Good for Africa? – Rachel Lund/Miguel Santos 19

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2011 02-07 - Can Africa possibly get a positive return on brain drain?

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2011 02-07 - Can Africa possibly get a positive return on brain drain? — Presentation Transcript