Wednesday, October 26, 2005

A new study out on the brain drain

Hat tip to the PSDBlog of the World Bank posts about new studies on international migration. I did however find the following statement odd:
Two new books (both free online) look at the impact of ‘brain drain’ on development, and agree that the loss of skilled workers may be trapping the least developed countries in poverty.

All I read is that it is possible for so-and-so negative effect to happen - especially in Kapur and McHale's brief. They mention possible negative channels, highlighting the loss of "institution-builders". Combine that with findings that institutions are an important part of economic growth, and you get the negative conclusion. Plug in the family institution (not mentioned in the brief), and the picture is even worse, with lots of families effectively reduced to single parenting due to migration.

However the evidence (reported in the book edited by Ozden and Schiff) point to mainly positive effects of remittances on wealth, human capital formation (kids get better educated), incomes, and poverty reduction among the origin households. (Evidence on inequality is mixed).

Migration choices are made voluntarily by the households, trading off proximity for income. While a lot may made of a hypothetical scenario of rapid domestic wage growth for skilled workers, thus promoting brain retention, the reality is persistently large and stable wage margins between developed and developing economies, which (in the household's calculation) more than offset the psychic and other costs of migration. Moreover, it is difficult to imagine that institutions in developing countries would be appreciably better had they not gone through the recent wave of migration. If for example institutions are built by few key individuals who would likely not migrate anyway, then the instituion-building argument fails. Keeping talent home may just be leaving lots of money on the table (abroad, that is.)

My personal view is that migration has so far been welfare-improving and promotes economic growth in the origin country - especially for the Philippines. It is not the solution to slow growth (nothing is), but it can certainly help. And as the sending economy grows and local incomes rise, the incentive to migrate diminishes.

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