THE BRAIN DRAIN Economics & Management in Developing Countries

Transcription

1 THE BRAIN DRAIN Economcs & Management n Developng Countres December 2001 Pankaj Chugh Wendy McMllan-Turner Bryan Turner

2 Table of Contents INTRODUCTION... 1 EMPIRICAL EVIDENCE OF THE BRAIN DRAIN... 1 DRIVERS OF THE BRAIN DRAIN... 7 CONSEQUENCES OF THE EMIGRATION OF HIGHLY-SKILLED PROFESSIONALS... 9 CASE STUDIES SOUTH AFRICA COLUMBIA INDIA POLICY IMPLICATIONS CONCLION BIBLIOGRAPHY... 21

3 Introducton Each year, thousands of hghly sklled ctzens of developng countres mgrate to the and other OECD countres. Ths phenomenon, commonly referred to as the bran dran, has been the subject of much debate n both the academc and publc arena. The emgraton of sklled labour s of great concern to most Less-Developed Countres as well as to some developed countres. Armed wth ambtous economc development plans, many Less- Developed Countres are short of the professonal, techncal and manageral personnel they need to mplement ther objectves. They must pay exceptonal salares to hre foregn managers and consultants. At the same tme, hundreds or even thousands of the hghly traned ndgenous elte leave the country every year for employment abroad. As ths mgraton of hghly sklled people becomes ncreasngly mportant to the world s economy, t becomes all the more mperatve to understand ts effects. Unfortunately, these effects have not been well studed or measured and are lkely to be more complex than acknowledged n most polcy dscussons. In ths paper, we gve a bref overvew of the evdence that exsts as to the extent of the bran dran n developng countres across the world and the varous drvers and consequences of ths movement. To llustrate the ssues n context, we consder three specfc cases: Inda, South Afrca and Columba. Fnally, we present a dscusson of the polcy mplcatons of the bran dran for both emergng markets and OECD countres. Emprcal Evdence of the Bran Dran Researchers attemptng to determne the extent of the bran dran and ts mpact on the economy of the source country have been faced wth sgnfcant dffculty n obtanng accurate data on mgraton rates. Ths s partly a consequence of the tendency for those that leave emergng markets to avod gong through the offcal emgraton process that frequently entals a sgnfcant tme commtment and substantally delays emgraton. The most accurate data on mgraton levels s thus obtaned through census data collected by the OECD countres. Ths data source does not normally take account of llegal mmgrants and, wth the excepton of the, provdes lttle n the way of nformaton concernng the educaton status of the mmgrants. 1

4 Notwthstandng these caveats, the mgraton data provded by the census and other OECD countres gves a reasonable ndcaton of the extent emgraton from developng countres across the globe. The nternatonal mgraton of professonal people and people wth specal sklls s not a new phenomenon. What s, however, new, s the extent of the mgraton of tertary educated people the large numbers nvolved and ther proporton relatve to other mgrants. Durng the nneteenth and early twenteth centures, much larger numbers of people mgrated but the characterstcs of ths mgraton were dfferent. Today, the proporton of mgrants who are hghly sklled professonals or employed n other occupatons nvolvng a hgh degree of tranng s hgh. Fgure 1 llustrates ths substantal change n the over tme: Educaton-Level of Mgrants - Tme Seres The proporton of mmgrants wth a tertary educaton has been ncreasng steadly over tme. 100% 80% % of Immgrants 60% 40% Other Other Other 20% Tertary Educaton 0% Tertary Educaton Tertary Educaton Source: Department of Commerce & Labour; Department of Justce: Immgraton & Naturalsaton Servce; Census data Fgure 1: 2

5 The most comprehensve data source currently avalable hghlghts the sgnfcant levels of outward mgraton of tertary educated people from developng countres. At a regonal level, a number of trends emerge 1 : - On average, mgraton rates are hghest n Central Amerca, and lowest n Afrca (Fgure 2) - The majorty of mgrants are hghly educated and mgraton rates wthn the tertaryeducated porton of the populaton are substantally hgher n all regons. (Fgure 3 & 4) - On average, mgraton rates among tertary-educated people are hghest n Asa- Pacfc and lowest n Afrca. (Fgure 4) The proporton of all mgrants from the regon who are tertary-educated s, however, hghest n Afrca. (Fgure 3) - In aggregate, the s the domnant recpent country, hostng more than half of all emgrants to OECD countres. (Fgure 5) Average Mgraton Rates On average, Central Amerca has the hghest mgraton rate; Afrca has the lowest. Average Total Mgraton Rate Across Countres 8% 6% 4% 2% 0% 7.6% Central Amerca 2.1% South Amerca 1.6% Asa- Pacfc 0.8% Afrca 2.4% World Source: Census data, OECD Note: 1990 data Fgure 2: 1 Mgraton rates are defned as the percentage of people from a partcular country who are no longer n that country. It s not an annual flow, but rather a cumulatve statstc. 3

6 Educaton Level of Mgrants Almost 40% of mgrants to the have a tertary educaton. Ths s substantally hgher than the proporton of the populaton n developng countres wth ths level of educaton. 100% 2376K 128K 3761K 616K 6881K Tertary 80% Tertary Tertary % of Mgrants 60% 40% Tertary Tertary Secondary Secondary Secondary 20% Secondary 0% Prmary or Less Secondary Prmary or Less Prmary or Less Asa & Pacfc Afrca Central Amerca Prmary or Less South Amerca Prmary or Less Total Source: Census data, OECD Note: 1990 data Fgure 3: Mgraton Rates by Level of Educaton Wthout excepton, mgraton rates are hghest wthn the tertary-educated porton of the populaton Average Mgraton Rate Across Countres 30% 25% 20% 15% 10% 5% 0% 0.1% 3.3% 12.2% Central Amerca 2.5% 14.9% South Amerca 0.6% 26.0% 26.0% Asa- Pacfc 0.1% 5.0% 10.2% Afrca 0.2% 9.3% 15.9% World Prmary or Less Secondary Tertary Source: Census data, OECD Note: 1990 data; calculated usng smple arthmetc average, not weghted by populaton sze Fgure 4: 4

7 Destnaton Countres The receves more than 50% of all mgrants from developng countres to OECD countres. At a regonal level, the destnaton of mgraton s lnked to geographc and hstorcally tes between regons. Other OECD Countres 100% 80% 6.76M 1.21M 3.87M 0.76M 12.60M Other OECD Countres Other OECD Countres % of Mgrants 60% 40% Other OECD Countres Other OECD Countres 20% 0% Asa & Pacfc Afrca Central Amerca South Amerca Total Source: Census data, OECD Note: 1990 data Fgure 5: Although regonal data gves some ndcaton of the extent of the bran dran, ts effects are largely lmted to poltcal boundares. Consderaton must thus be gven to the extent of bran dran from ndvdual countres. Emergng from the country-specfc data are the followng conclusons: - There s a sgnfcant level of dsparty between countres n terms of mgraton rate, even at a regonal level. Mgraton rates for specfc countres can be consderably hgher than regonal and global averages. Fgure 6 llustrates the extent of mgraton from the 10 countres wth the hghest rates. - In a survey of 59 countres (that does not nclude most of those shown n Fgure 6) conducted for the World Compettveness Report, The and Japan were revealed to have the least ssues wth bran dran, whereas South Afrca, Venezuela and Bulgara were revealed to have the bggest ssue (Fgure 7) - The mgraton of tertary-educated people s even more sgnfcant for specfc countres. Fgure 8 llustrates the mgraton rate among dfferent educaton groups for the same group of 10 countres. 5

8 Mgraton Rates Top 10 Countres Indvdual countres can have consderably hgh mgraton rates. The bulk of mgraton s towards OECD countres wth geographc proxmty or poltcal and economc lnks wth the source country. 25% 20% 20.3% Mgraton Rate 15% 10% 5% Other OECD 14.5% 11.4% Other OECD 9.5% 8.6% 8.5% Other OECD Other OECD 7.7% Other OECD 6.7% 6.5% 6.3% Other OECD 0% Jamaca Guyana El Salvador Trndad and Tobago Tunsa Turkey Mexco Panama Domncan Republc Algera Source: Census data, OECD Note: 1990 data Fgure 6: Bran Dran - Internatonal Compettveness Report 2000 The Most Talented Workers Reman n the Country (1= strongly dsagree; 7 = strongly agree) Score Japan Fnland Germany Iceland Columba Zmbabwe South Afrca Venezuela Bulgara Top 5 Rankngs Bottom 5 Rankngs Source: Internatonal Comettveness Report 2000; Survey of 59 countres. Fgure 7: 6

9 Mgraton Rates among Tertary Educated Top 10 Countres In many countres more than half of ther tertary-educated people mgrate. 100% Mgraton Rate Among Tertary Educated 80% 60% 40% 20% 77.4% 77.5% 26.1% 57.8% 63.3% 46.2% 10.3% 19.6% 14.7% 55.0% 0% Jamaca Guyana El Salvador Trndad and Tobago Tunsa Turkey Mexco Panama Domncan Republc Algera Source: Census data, OECD Note: 1990 data Fgure 8: - Some of the countres where the bran dran s reputed to have been a serous ssue do not actually have a partcularly hgh mgraton rate (even among those wth tertary educaton) when compared wth other countres around the world. Inda provdes an example: ts total mgraton rate s only 0.2% and even among those wth tertary educaton, t s only 2.6%. The data does not, however, reveal the extent to whch ndvdual sectors and professons are mpacted. Drvers of the Bran Dran Evdence from a range of developng countres ndcates that there s no sngle factor that can explan the magntude or exstence of the bran dran effect. Most academcs that have explored ths phenomenon have focused on the attractve factors present n developed markets that draw emergng market professonals towards them. Enrque Oteza, n dscussng the case of Latn Amercan engneers, suggests several reasons why professonals mgrate readly 2 : 1. Advanced tranng s readly usable across countres and regons wthout adaptaton 2 Oteza, Emgraton of Engneers from Argentna: A Case of Latn Amercan bran dran, Internatonal Labor Revew, 92(6),

10 2. Professonals usually know at least one language n addton to ther mother tongue, makng ntegraton nto economes of other regons easer 3. Communcaton between professonals n dfferent countres s good because professonals often travel for busness, thus professonals are far more aware of opportuntes n other countres 4. Demand for professonals s great n most countres, and usually exceeds supply, thus provdng the ncentve to look for professonals from beyond the borders 5. Cost of transportaton s mnor n relaton to salary, and movng professonals s cheap relatve to the value they add. The same cannot be sad for less sklled workers These reasons explan only why professonals fnd t relatvely smple to mgrate, and apply equally well to emgrants from developed countres as they do to those from emergng markets. Walter Adams 3 consdered factors more specfc to the bran dran phenomenon. These nclude: 1. Sgnfcant salary dfferentals exst across smlarly sklled professonals of developed and developng countres, even f the functon they are performng s the same. Ths s generally true on both on a nomnal and a purchasng power party bass. 2. Professonal opportuntes, especally n research, arsng from amongst other thngs, the technology gap. 3. The relevance of foregn tranng to the source economy students studyng abroad may fnd that ther sklls are less applcable to the developng country of orgn, and they are encouraged to reman where they can add more value through ther educaton. 4. Monopolstc restrctons n developed countres that lmt the supply of qualfed professonals and consequently create the skll-shortage that prompts mmgraton. For example, the restrctons on the number of medcal school places at schools result n a shortage of doctors and the need for mmgraton 5. Dscrmnaton n the country of orgn, especally where herarches are weghted aganst the young 6. Dscrmnaton on non-economc grounds n developng countres In ths analyss, Adams focuses prmarly on the pull factors that drve the bran dran. What Adams analyss lacks, however, s any consderaton of the push factors that prompt 3 Walter Adams, The Bran Dran, New York, MacMllan Company,

11 emgraton from many developng natons. Although there has been lttle n the way of academc research on the topc, the journalsts frequently brng ther readers attenton to the mpact of crme, poverty, lack of poltcal and economc freedom and a range of socal ssues on the mgraton of sklled professonals from developng countres. The case studes of South Afrca and Columba dscussed later n ths paper provde llustraton of the sgnfcance of these factors when consderng the drvers of the bran dran n some areas. Consequences of the Emgraton of Hghly-Sklled Professonals Hstorcally, economsts agreed that the effect of the bran dran on talent and sklls, and by further deducton, on growth, welfare and compettveness n emergng markets was uncondtonally negatve. Ths negatve effect can be proved usng a two-sector endogenous model, such as that developed by Wong & Yp (1999) to examne the relatonshp between economc growth and bran dran 4. The engne of growth n ther model s the accumulaton of human captal through educaton. After provng the exstence, stablty and unqueness of the equlbrum of a closed economy, they examne several propertes of the bran dran. Ther results suggest that: 1. The bran dran has an averse effect on the wage rate of unsklled workers but t mproves the wage rate of the sklled workers (Emprcally, we note that ths s ndeed the case n many countres such as, for example, Inda) 2. The bran dran has a negatve mpact on the growth of the source country Today, economsts are ncreasngly realsng that ths vew s potentally overly smplstc and that the relatonshp between the bran dran and growth s far more complex, wth postve effects that go at least some way towards offsettng the negatve effect of the bran dran tself. Regets (2001) presents a summary of the range of potental global and natonal effects of hgh-sklled nternatonal mgraton, hghlghtng both the postve and negatve effects to the sendng and recevng countres: From the perspectve of the sendng country, possble negatve effects nclude: - Bran Dran ; lost productve capacty due to at least temporary absence of hgher sklled workers and students - Less support for publc funds for hgher educaton 4 Wong & Yp 9

12 These negatve effects may be offset by a number of postve effects: - Increased ncentve for natves to seek hgher sklls - Possblty of exportng sklls reduces rsks/rases expected return of publc educaton nvestments - May ncrease domestc return to sklls - Knowledge flows and collaboraton - Increased tes to foregn research nsttutons - Export opportuntes for technology - Return of natves wth foregn educaton and human captal - Remttances and other support from Daspora networks From the perspectve of the recevng country, possble negatve effects nclude: - Decreased ncentve of natves to seek hgher sklls - May crowd out natve students from best schools - Language and cultural barrers between natve and mmgrant hgh-sklled workers - Technology transfers to possbly hostle countres, as the nformaton flows mentoned above take place. These negatve effects may be offset by a number of postve effects to the recevng country : - Increased R&D and economc actvty due to avalablty of addtonal hgh-sklled workers - Knowledge flows and collaboraton - Increased tes to foregn research nsttutons - Export opportuntes for technology - Increased enrolment n graduate programs/keepng smaller programs alve. In addton to these country-specfc effects, mgraton of hghly sklled professonals has a number of potental global effects: - Better nternatonal flow of knowledge - Better job matches - Greater employment optons for workers/researchers - Greater ablty of employers to fnd rare/unque sklls - Formaton of nternatonal research/technology clusters (Slcon Valley, CERN) - Internatonal competton for scarce human captal may have net postve effect on ncentves for ndvdual human captal nvestments 10

13 The exstence of some of the postve effects of ths mgraton on the source economy has led some economsts to queston the prevously accepted polcy-ntatves of developng countres seekng to restrct emgraton. Stark et. al. beleve that prospectve mgraton favourably alters the ncentves of a poor country s workforce to nvest n human captal formaton and that, as a consequence, polcymakers may wsh to reconsder before embarkng on measures that hnder mgraton. Mountford s theoretcal analyss provdes further support for ths lne of debate. He reaches the concluson that When human captal accumulaton s endogenous and when successful emgraton s not a certanty, the nteracton between human captal accumulaton decsons, growth and ncome dstrbuton can lead to the result that a bran dran, ether temporary or permanent, may ncrease the long run ncome level and ncome equalty n a small open economy, and, n certan crcumstances, may even be preferable to a non-selectve general mgraton 5 Although, n theory, the argument that an ex-ante bran gan may be greater than the ex-post bran dran s vald, t s necessary to test the emprcal valdty usng actual cross-sectonal and tme-seres data. Gven the lack of relable data, no researchers have yet been able to conduct emprcal econometrc analyss for a sngle country over a perod of tme. Bene, Docquer and Rapoport (2001) have, however, used cross-sectonal data from 37 developng countres 6 to explore the emprcal relatonshp between the bran dran, bran gan and growth. Usng OLS mult-varate regresson they derve the followng results: ln( mg ) = ln( dff ) ln( pop ) (1.804) ( 4.158) ( 0.489) ln( epub ) R 2 = Mountford (1997) 6 Countres ncluded n ther sample: Algera, Bangladesh, Brazl, Chna, Columba, Cuba, Cyprus, Domncan Republc, Ecuador, Salvador, Fj, Ghana, Guatemala, Guyana, Hat, Honduras, Hong Kong, Inda, Iraq, Iran, Jamaca, Kenya, Lebanon, Malaysa, Mexco, Morocco, Ngera, Pakstan, Phlppnes, South Afrca, South Korea, Sr Lanka, Surnam, Thaland, Trndad & Tobago, Tunsa, Turkey 11

14 ln( hum ) = ln( mg ) ln( mg * plev ) + ( 3.868) ( 0.502) (2.495) (2.207) ln( epub ) R 2 = grw = mg hum rem ( 1.539) ( 0.184) (1.855) (0.784) R 2 = where: hum = UN educaton level ndcator (1994) grw rem = = Growth rate of GDP per capta (Average at PPP) mg = Mgraton rate (Average ) epub = Expendtures n publc educaton (% GDP, Average ) Workers' remttances (% GDP, 1990) dff = GDP per head dfferental wth OECD countres (1990) pop = Populaton sze (1990) plev = Dummy varable that nvolves threshold for beng n 'underdevelopment trap' As a whole, the sgns of the estmates are n accordance wth theoretcal predctons: - There s a postve and sgnfcant correlaton between mgraton and wage dfferentals - There s a strong and sgnfcant negatve correlaton between mgraton rate and populaton sze, suggestng that mmgraton constrants such as quotas are, ndeed, bndng - Although poorly estmated, human captal accumulaton appears to be postvely correlated wth growth Gven the sgnfcance of the results, Bene et. al. contend that the ncentve effects of mgraton prospects cannot be easly dsmssed on emprcal grounds, especally when controllng for non-lnearty and conclude that: Even though the estmatons are not fully controlled for heterogenety across countres and should therefore be read wth cauton, the results suggest that the emprcal evdence from a large set of countres does not allow to reject the theoretcal analyss In other words, there s some evdence that the ex-ante bran gan may offset the negatve mpact of the ex-post bran dran. Further research wth mproved qualty cross-sectonal and tme-seres data wll be needed to resolve ths debate over the consequences of the bran dran. 12

15 Case Studes South Afrca South Afrca s a country that, despte hstorcally achevng reasonable rates of economc growth and a beng at a moderate level of development, faces an economc predcament blamed partly on a severe mbalance n sklls and educaton, and partly on the legacy of ts poltcal past. On the whole, nternatonal journalsts are balanced n ther crtcsm of the country, holdng the vew that: Government deserves hgh marks for economc polcy, but serously flawed areas the labour market, lack of sklls, nablty to control crme nhbt South Afrca s growth potental n the longer term 7. Ths has not, however, always been the prevalng vew. South Afrca provdes an nterestng case study of a country that has gone through a cycle of beng a net-mporter of talent to a net-exporter durng a relatvely short space of tme. Up to the 1960 s South Afrca was consdered to be one of the developed country members of the Brtsh Commonwealth, alongsde Australa, New Zealand and Canada 8. At ths tme, t was Brtan that was becomng serously worred about the mpact of the outward mgraton of ts scentsts, physcans and other professonals many of whom were attracted by favourable lvng condtons and economc prospects n South Afrca. By the 1980 s, however, the stuaton had reversed. A new generaton of South Afrcans, many of whom were enttled to Brtsh ctzenshp as a consequence of ther ancestral orgn, were choosng to leave the country and take ther sklls elsewhere. Concdng wth ths reversal n mgraton pattern was a populaton boom wthn the least educated members of the populaton. Compoundng ths, poltcal polces of the freedom fghters ncludng lberaton before educaton, and nflows of less-educated mgrants from regons of poltcal and economc nstablty n the surroundng regon exacerbated the sklls mbalance and shortage. Despte moderate GDP growth, GDP per capta declned steadly and ncome polarty ncreased sharply. No longer consdered a developed country, South Afrca moved nto the same set of countres as Brazl and many other Latn Amercan states. 7 Innocent, Ncol Degl; Feedng off the fruts of austerty, Fnancal Tmes, London (November 2001) 8 Fortney, Judth; Internatonal Mgraton of Professonals, Populaton Studes, Volume 24, Issue 2, (July 1970) 13

16 Some consder the bran dran problem to be exaggerated, ctng offcal statstcs of 10,000 people emgratng from South Afrca n Ths data does not, however, take account of those who leave the country wthout makng an offcal declaraton: those wshng to avod the ple of paperwork that formal emgraton entals, to avod payment of tax, or smply to keep ther optons open by retanng ther South Afrcan passports. Unoffcal estmates put the number of mgratng professonals at three tmes that stated by the government. A study by the Pars-based Insttute for Development Research of emgraton to the UK,, New Zealand, Canada and Australa, who estmated that 233,609 people left the country for these destnatons between 1987 and Of these mgrants, 41,000 were professonals. The precse effect of ths loss of sklls s dffcult to quantfy. The mpact s both drect, n terms of lost economc producton from the mgrants themselves, and ndrect through lost spllovers, lost employment, and lost tax revenues. Conservatve estmates suggest that the bran dran has cost South Afrca R67.8B ($8.9B) n lost human captal snce 1997, and further retarded economc growth over the same perod 9. The man reasons for mgraton nclude crme, low salares, lmted prospects for career advancement and a deteroratng medcal nfrastructure 10. The sgnfcance of crme as a push factor for mgraton s clear. Despte not havng a cvl war durng ts poltcal change, South Afrca s crme statstcs showed a hgher murder rate (per 100,000 persons) than many countres at war and statstcs suggest that Johannesburg has the hghest ncdence of murder and rape n the world 11. A recent survey by market research group FSA/Contact 12 found that 96% of South Afrcan emgrants cte fear of crmnal volence as a reason for packng ther bags. Whle crme s rrefutably the prmary drver of South Afrca s bran dran, other factors also contrbute. One such factor s the lack of career opportuntes for the demographc group who are emgratng. As new labour laws and legslaton act to redress the mbalances created by the prevous poltcal system, many qualfed canddates of European orgn are overlooked as employers seek to meet the legal employment equty requrements. Ths results not only n less opportuntes and slower promoton, but dstorts the job market, resultng n sgnfcant wage dsparty among smlarly sklled workers based purely on race. 9 Anonymous; Bran Dran hts growth, Fnancal Tmes, London (August 2001) 10 Anonymous; Bran Dran hts growth, Fnancal Tmes, London (August 2001) 11 Anonymous; Lawyer ressts South Afrca s bran dran, Euromoney, London (June 2000) 12 Anonymous; Whte Flght, The Economst, London (9 Jun 1998) 14

17 Snce most emgrants are Caucasan, some South Afrcans bd them good rddance, magnng that every departng Caucasan leaves a vacancy for a formerly oppressed black 13. The government, however, beleves that ths exodus of sklls s hurtng the economy, and that t s makng t ncreasngly dffcult for the country to meet the growth projectons of nternatonal economsts and governments. However, despte these apparent concerns of the South Afrcan Government, no polces are beng actvely mplemented to try and stem ths tde. The sectors wth the greatest sklls shortages are IT and Fnancal Servces. An estmated 350,000 to 500,000 sklled workers are requred by these sectors n South Afrca, makng them partcularly vulnerable to the effects of the bran dran 14. A Prce-Waterhouse Coopers survey revealed that South Afrcan banks dentfy sklls shortages as the bggest threat facng ther ndustry. But here pull factors serve as an addtonal factor, snce nternatonal organsatons are able to offer much hgher salares to sklled workers than the South Afrcan banks. As a result, South Afrcan banks lose ther traned people to nternatonal organsatons, thereby not only tranng ther compettors workforces, but also slowng ther growth and expanson projects, as they are unable to staff ther ventures approprately. Other professonals, ncludng doctors, nurses, engneers, teachers and journalsts are all seekng to sell ther sklls for a hgher wage and a safer lfe outsde the volatle and crmerdden country 15. Although the causes of the bran dran are largely nternal, OECD countres selectve entry crtera that target educated professonals compound the problem. Canada welcomes mllonare entrepreneurs, Amercan hosptals offer vast packages to good doctors, and Australa operates a ponts system to separate the more productve vsa applcants from the less so. A smple, yet effectve flter s the requrement that all applcants can afford ar tckets to ther destnaton. Accordng to FSA/Contact, 11% of the top managers and 6% of the mddle managers that resgned last year dd so n order to emgrate 16. These selectve crtera result n only the best sklled people beng lost. Ths s further confrmed through 13 Anonymous; Whte Flght, The Economst, London (9 Jun 1998) 14 Anonymous; Lawyer ressts South Afrca s bran dran, Euromoney, London (June 2000) 15 op. ct. 16 Anonymous; Whte Flght, The Economst, London (9 Jun 1998) 15

18 publcatons such as The Global Compettveness Report who rank South Afrca 57 th out of 59 countres on the comment The most talented workers reman n the country. 17 Smple changes and ncentves from the Government of South Afrca could help to attract South Afrcan students abroad to return at the end of ther studes. Fnancal consderatons for students who studed abroad are a sgnfcant push factor keepng them there. Snce South Afrca does not have tax ncentves for tertary educaton, nor salares that are comparable to nternatonal levels, any South Afrcan wth nternatonal debt oblgatons to cover ther studes wll only be able to servce these through workng nternatonally. The contnued deprecaton of the Rand versus nternatonal currences adds further dffcultes to ths challenge. For students who work nternatonally, after commencng a career and settlng n a new country for a number of years the pull back to South Afrca dwndles, and they are lost forever, returnng only as toursts. Rather than students wantng to stay abroad, they are forced to n order to earn salares suffcent to cover debt oblgatons for ther studes. Ths bran dran effect s not only lmted to South Afrca. Every year, 23,000 graduates leave Afrca for opportuntes overseas, manly n Europe. The emgraton of techncally sklled people has left 20,000 scentsts and engneers n Afrca, servcng a populaton of about 600m. One of the worst examples of the bran dran s Zamba. A few years ago the country had 1,600 doctors, but there are now only 400 n practce. Zamban doctors have mgrated to Europe, the, and neghbourng Botswana, lured by hgher salares. The consequences of the bran dran for development of the contnent are dscouragng. As Karn Cowan-Louw of the IOM ponts out: There are more Afrcan scentsts and engneers workng n the than there are n Afrca. Long term economc growth cannot be acheved by prmarly exportng natural resources: Karn Cowan-Louw, IOM Columba Colomba, lke South Afrca has crme as the major push factor forcng educated and professonal Colombans to leave the country. However, as opposed to ndscrmnate crme, the major cause of flght s the threat of frequent kdnappngs. In the frst 6 months of 2000 an estmated 1,559 people were kdnapped and held for ransom n Colomba. The targets of the kdnappngs are typcally wealthy ndvduals, who are able to pay the ransom money. As a result, the busness leaders of the country have added ncentve to leave. 17 Porter et al, The Global Compettveness Report 2000, Oxford Unversty Press, New York (2000), p280 table

19 The threat of kdnappng has been used to further effect by the Armed Revolutonary Forces of Colomba, the country s largest guerrlla group, who have mposed a tax of 10% on all ndvduals wth a net worth of $1 mllon or more. Although labelled as a tax, t s really a brbe to prevent kdnappng. Should you not pay, you wll be kdnapped, and only released on the payment of a ransom. The result has been that an estmated 800,000 Colombans, have offcally mmgrated between 1996 and In 1999 an estmated 366,000 Colombans appled for nonmmgrant vsas to the. Many of them use ths opportunty to look for jobs before makng ther fnal move. Further undsclosed numbers are from the younger generaton leave Colomba on study vsas to become educated n the, and never return. The populaton of successful, educated, professonal Colombans n the countres of A, Canada, Span, Costa Rca, and Australa s growng, as ctzens flee for safer locatons to lve. Part of the evdence that t s the crme, rather than the economy that s forcng these people to move les n the number of South Amercan companes now beng operated from Mam. The ncreasng flow of knowledgeable South Amercans to Mam s makng ths cty an ever more attractve locaton for the head offces for many Latn Amercan companes. Smlarly to South Afrca, Colomba ranks 55 th on the same queston regardng the retenton of the most talented professonals. 18 Inda Accordng to a UNDP report released n 2001 Inda 100,000 sklled computer professonals to the alone. It estmates the average cost of provdng educaton to each professonal to be $15,000-$20,000, resultng n a total loss of around $2 bllon per year. The Indan Mnster of Informaton Technology estmates that of the 100,000 engneers churned out by Indan nsttutons each year, 60,000 emgrate and the problem could be greater than these numbers reflect snce the qualty of engneers who emgrate s far superor to those who are left behnd. Whle the UNDP has calculated the drect mpact of the bran dran on Inda, the ndrect mpact could be much larger. The shortage of sklled labour has been detrmental to the compettveness of Indan ndustry. The professonal staff turnover n the IT ndustry s 18 Porter et al, The Global Compettveness Report 2000, Oxford Unversty Press, New York (2000), p280 table

20 reputed to be more than 20%. On average, the cost of replacng an employee runs at about 120% of hs or her salary, a devastatng sum for a company wth such hgh turnover. The mpact of the bran dran s not, however, lmted to hgh-tech and servce ndustres such as IT, fnance and pharmaceutcals. Rpple effects are begnnng to emerge n tradtonal manufacturng ndustres that are losng qualty people to the hgh-tech ndustry. The soarng local salary for sklled workers s a reflecton of the growng shortage. Pull factors makng developed countres more attractve appear to be the prmary drvers of Indan emgraton. For years many ambtous Indan Managers, bankers and hgh-tech specalsts have been headng to the West to buld ther careers and seek ther fortunes. Those who stayed at home had to get by on a fracton of what ther compatrots could earn n world s major fnancal and technology centres. Tradtonally, the has been the most sought after destnaton for the Indan engneers and doctors. More recently, European countres, faced wth the negatve mpact of an agng populaton and severe shortages of sklled labour have started attractng the Indan Engneers. Germany, through German Academc Exchange Servce (DAAD) and the UK, through the Brtsh Educaton Far have been partcularly actve n ther efforts to market themselves to Indans as destnatons for hgher educaton and job-opportuntes. Germany has set a target of 20,000 mmgrants for hgh-sklled job-openngs. Ths year, the ncreased the H1-B work vsa quota from 115,000 to 200,000 n order to woo the Indan IT professonals. Other recent contenders for Indan students nclude France and Canada, whch have been hostng educaton fars n dfferent parts of Inda. Recently New Zealand ntroduced an annual four-cty tour n attempt to beat the others wth ctzenshp opportuntes for successful students. The government of Inda seems to be encouragng the bran dran as a source of muchneeded foregn currency. Ther assumpton s that emgrants wll reman n contact wth others back home, facltate technology transfers and provde a stock of sklled labour to be drawn on f need be. The government has therefore been provdng ncentves for emgraton n antcpaton of an eventual reverse mgraton back to Inda. Although no offcal study has been done on ths reverse bran dran effect, the unoffcal numbers ndcate that the effect s nsgnfcant: For every 1000 professonals who leave Inda every year, only 1 or 2 return. An addtonal reason for Inda s bran dran les n the uneven dstrbuton of the educaton budget. In 1960s, Indan government founded nsttutons such as Indan Insttutes of 18

21 Technology (IITs) for provdng world-class tertary educaton to the best Indan brans. Ths has resulted n lmted educaton budget beng spent on a select few people. Consequently a small percentage of the Indan populaton s hghly educated, whle the majorty remans llterate. Wth ncreasng globalsaton, those wth educaton are beng attracted to developed markets, whle those wth lttle or no educaton reman behnd workng n local companes. It s estmated that more than 75% of graduatng class at the IITs were workng outsde Inda 5 years after graduaton. Fnally, the bran dran n Inda s exacerbated by dstortons n the labour market. It s not uncommon to hear of ndvduals wth a Masters degree earnng n excess of $1000 a month, compared wth those holdng a Ph.D. earnng less than $500 a month. These dstortons stem from the governments archac Human Resource polces and the result n the nablty of the Indan companes to nvest n captal-ntensve research. Inda s n a smlar poston to South Afrca: It too ranks at the bottom of the table n ther ablty to retan the most talented workers, placng 47 th out of the 59 countres 19. Polcy Implcatons The s no clear agreement among governments of developng countres concernng the mpact of the bran dran on ther economc growth. As a result, the range of polcy ntatves amed at addressng the ssue s partcularly broad. Kwok and Leland suggest that the problem s one of market falure and as such, cannot be effectvely dealt wth by the prvate sector. They beleve that approprate government polces may help and hghlght four potental ntatves amed at dealng wth the specfc aspect of the problem whch concerns students from developng countres gettng tranng abroad and falng to return: 1. Government nformaton of the structure of foregn educaton - A potental means of allevatng the nformatonal asymmetry whch may result n students returnng to developng countres beng under-employed as ther sklls are not accurately assessed 2. Scholarshps wth return guarantees 3. Subsdes for return 19 Porter et al, The Global Compettveness Report 2000, Oxford Unversty Press, New York (2000), p280 table

22 4. Development of elte educatonal programs - A hgher qualty of tertary educaton n the developng country would deter at least some of the students from gong abroad to obtan ther educaton As hghlghted n our dscusson of Inda, there are governments whch largely support the vew that there s no sgnfcant negatve effect of a bran dran and may even encourage t by creatng elte learnng nsttutes and encouragng foregn companes and countres to actvely recrut wthn ther borders. At the opposte extreme, countres have adopted a polcy that prevents any emgraton from takng place at all. In most cases, governments of developng countres appear to have some concerns regardng the exodus of ther sklled professonals and, although they realse that preventng emgraton entrely would not be to ther advantage, they do take measures to control the flow. There are both postve and negatve ssues for recpent countres. On the one hand, ther ctzens may be opposed to mmgraton that could be seen to add to any exstng unemployment. On the other hand, facng the problem of an agng populaton and sgnfcant sklls shortages, many developed countres rely on hghly sklled mmgrants to assst n drvng economc growth. The combnaton of these ssues has resulted n movement towards a polcy that encourages mmgraton of sklled professonals but makes t ncreasngly dffcult for those wthout educaton to mgrate. These polces tend to exacerbate the problems for developng countres. Concluson The phenomenon of the Bran Dran s nether well understood, nor well researched. The offsettng postve and negatve effects for both developng and developed natons add to the confuson n judgng whether to promote or try to prevent ths mgraton. Emprcal evdence and research that has been conducted hghlghts the possblty that postve effects of the ex-ante bran gan are sgnfcant but renforces the theory that the expost bran dran has a negatve mpact on growth n the source country. As llustrated by the three case studes (South Afrca, Columba and Inda) both push and pull factors are mportant when consderng the drvers of the bran dran. The lack of understandng of ths phenomenon, and debate concernng ts effect on developng economes has resulted n a broad range of polces amed at tacklng the problem. However no polces have been able to stop the flow, and t s clear that the bran 20

23 dran wll contnue nto the mmedate future as long as the drvng forces reman sgnfcant. What remans to be seen s whether or not ths dran turns nto a gan at some tme n the future, and whether people ever begn to return to the developng countres they once left. Bblography 1. Adams, Walter; The Bran Dran, MacMllan Company, New York (1968) 2. Anonymous; Busness: Developng, The Economst, London, 14 Aprl Anonymous; Lawyer Ressts South Afrca s Bran Dran, Euromoney, London (June 2000) 4. Anonymous; Sngapore Wants You, IEEE Spectrum, New York (January 2001) 5. Anonymous; The Mgraton of Knowledge Workers: Second Generaton Effects of Inda s Bran Dran, Internatonal Labour Revew, Geneva (2000) 6. Bene, Mchel; Docquer, Frédérc & Rapoport, Hllel ; Bran Dran and Economc Growth: Theory and Evdence ; Journal of Development Economcs, Volume 64, (2001) 7. Burns, Smon; Asan Innovaton Awards: Bankng on Brans, Far Eastern Economc Revew, Hong Kong (19 October 2000) 8. Carrngton, Wllam J & Detragache, Enrca; How Bg s the Bran Dran?, IMF Workng Paper, Washngton, (1998) 9. Carrngton, Wllam J & Detragache, Enrca; How Extensve s the Bran Dran?, Fnance & Development, Washngton, Volume 36, Issue 2, (June 1999) 10. Chanda, Nayan; A Tug of War for Asa s Best Brans, Far Eastern Economc Revew, Hong Kong, Volume 163, Issue 45, (9 November 2000) 11. Cho, Hae Won; Bran Dran n South Korea Beng Reversed Many Entrepreneurs Decde to Return to Postons at Large Conglomerates, Wall Street Journal, New York (18 September 2000) 12. Engerman, Stanley L & Jones, Ronald W; Internatonal Labor Flows and Natonal Wages, The Amercan Economc Revew, Volume 87, Issue 2, (May 1997) 13. Fortney, Judth; Internatonal Mgraton of Professonals, Populaton Studes, Volume 24, Issue 2, (July 1970) 14. Glley, Bruce; Fllng the Gap, Far Eastern Economc Revew, Hong Kong (14 September 2000) 15. Hamln, Mchael Alan; Bran Dran, Far Eastern Economc Revew, Hong Kong, Volume 163, Issue 18, (4 May 2000) 16. Kwok, Vem & Leland, Hayne, An Economc Model of the Bran Dran, The Amercan Economc Revew, Volume 72, Issue 1, (March 1982) 21

24 17. Mahroum, Sam; Hghly-Sklled Globetrotters: Mappng the Internatonal Mgraton of Human Captal, R&D Management, Oxford, Volume 30, Issue 1, (January 2000) 18. Mountford, Andrew; Can a Bran Dran be Good for Growth n the Source Economy?, Journal of Development Economcs, Volume 53, (1997) 19. Oteza, Enrque; Emgraton of Engneers from Argentna: A Case of Latn Amercan bran dran, Internatonal Labor Revew, Colume 92, Issue 6 (1965) 20. Porter et al, The Global Compettveness Report 2000, Oxford Unversty Press, New York (2000) 21. Prystay, Crs; Malaysa Suffers Tech Bran Dran Software Engneers leave Country for Better Pay, More Savvy Envronment, Asan Wall Street Journal, New York (30 November 2000) 22. Regets, Mark; Research and Polcy Issues n Hgh-Sklled Mgraton: A Perspectve wth Data from the Unted States, Insttute for the Study of Labor, Bonn, Dscusson Paper 366 (September 2001) 23. Reubens, Edwn P; Internatonal Mgraton Models and Polces, The Amercan Economc Revew, Volume 73, Issue 2, (May 1983) 24. Roche, Davd; South Afrca: A Rsng Star, Euromoney, London (May 2001) 25. Sender, Henny; Buldng the New Inda, Far Eastern Economc Revew. Hong Kong, 20 July Sender, Henny; Inda s Combatng Bran Dran wth Hefty Pay, Other Perks, Asan Wall Street Journal, New York, 18 August Sender, Henny; Soarng Indan Tech Salares reflect the Country s Bran Dran, Wall Street Journal, New York, 21 August Sesser, Stan; A Bran Dran n Reverse Boosts Tawan, Wall Street Journal, New York, 28 December Stark, Oded; Helmensten, Chrstan & Prskawetz, Alexa; A Bran Dran wth a Bran Gan, Economcs Letters, Volume 55, (1997) 30. Wong, Kar-yu & Yp, Chong Kee; Educaton, Economc Growth and Bran Dran, Journal of Economc Dynamcs & Control, Volume 23, (1999) 22