Swimming with the brain drain

'There may be ways Israel can benefit' - Bar-Ilan professor.

thinking man 88 (photo credit: )
thinking man 88
(photo credit: )
Policy-makers have long lamented the migration of skilled workers and academics to the United States and Europe; a conference on "Globalization and the Brain Drain" held last week at Bar-Ilan and Hebrew universities shed a new and somewhat more optimistic light on the phenomenon. "The common wisdom is that a brain drain is something detrimental to the source country," Prof. Hillel Rapoport, of Bar-Ilan's Department of Economics, explained by phone this week. "But this is not evidence-based. "Actually, until recently there were no good data sets on international migration allowing for an empirical analysis of the economic effects of the brain drain. Such data have become available in the last five years, and the evidence on this phenomenon has actually been balanced. "It's not purely negative," Rapoport said. In any case, an estimated 3,000+ Israelis have left in recent years to accept senior staff positions at universities around the world, and fewer than 4,500 senior lecturers remain in the country. Additionally, the Israel Manufacturers Association recently announced that in 2007, 25,000 hi-tech workers left for jobs overseas. And while the flight of skilled labor is certainly less-than desirable, Rapoport maintains that the brain drain can potentially bring two good pieces of news for the country of departure - one before migration takes place, and one after people have left. Beginning with what can happen before emigration, Rapoport alluded to a country's human capital potential as a pie, and explained that in the conventional sense, the loss of skilled workers and academics to another country is considered simply as a net loss, as a piece of the pie is cut away. "But in this case, the size of the pie may react to the prospect of emigration," he said. The essence of Rapoport's argument is that because the return to education is higher abroad, prospects of emigration can raise the expected return to human capital and therefore the value of education, (that is, education buys the option to emigrate and thereby limits risk in the home country). This incentive can generate more demand for education and training and, under certain conditions, can trump that of the actual emigration, causing a net increase in human capital for the source country. However, Rapoport cautioned, this depends on a number of factors, the most important being the country's public education infrastructure, the wage gap between source and destination countries and, ultimately, the rate of emigration. In a study published in the April 2008 issue of the Royal Economic Society's Economic Journal and co-authored with Professors Michel Beine and Frederic Docquier from the universities of Luxembourg and Louvain, respectively, Rapoport found that some developing countries, including Brazil, China and India, actually benefit from the brain drain. Taking advantage of a recent data set on emigration rates by education levels in 127 developing countries, the researchers first estimated the effect of skilled migration prospects on gross (or pre-migration) human capital levels. They found that when the emigration rate of the highly skilled was doubled, it induced a 5 percent increase in gross human capital formation among the native population, including both residents and emigrants together. They also found that most countries that combine low levels of human capital and low migration rates of skilled workers ended up with an overall positive effect. In contrast, the brain drain was seen to have negative effects in countries where the migration rate of the highly educated is above 20% and/or where the proportion of people with higher education is above 5%. Israel seems to blur the line between the countries that can benefit from the brain drain and those who lose out. While Israel does have the infrastructure to support a higher level of investment in its education system, the proportion of highly educated workers is already certainly too high for Israel to benefit from the increased demand for education created by the brain drain, inasmuch as wage differentials between Israel and skilled emigrants' main destination, the United States, are substantial but not extremely high. Citing the case of India, Rapoport explained that the second phase of a possibly positive spin on the brain drain, is the number of "emissaries" emigration can generate for the source country. "The fact that there are so many Indian immigrants living in the United States makes this clear," he said. "American companies that have a large number of Indian workers, will look at India first when opening a subsidiary in Asia. The fact that they have already have Indians working for their company eases the transaction costs of the move, provides partners for joint ventures, solutions to language and cultural barriers. It makes a lot of sense. Otherwise, it would be difficult to explain the rise of an Indian silicon valley in Bangalore without the connection to the Indian diaspora in the American Silicon Valley in the 1970s and '80s." And indeed, a recent study by Rapoport and Maurice Kugler from the Center for International Development at Harvard University shows that highly skilled migrants have a significant positive effect on foreign direct investment received by their country of origin. Similarly, papers presented at last week's conference emphasized that highly skilled migration can contribute to source countries' technology adoption as well as to their adopting norms of good governance and democratic values. Given that there are some positive aspects, Rapoport continued, Israel must now acknowledge that the brain drain can only partly be curbed through economic incentives, and should try to take advantage of the brain drain's potential. "We're in no way saying that the brain drain is good for Israel," he said. "But what we are saying, is that instead of fighting against this wave, there may be ways in which we can swim with it."