Summary:
– Three main schools of thought analyze the effects of emigration on migrants’ countries of origin: the first considers it neutral, the second considers it harmful to public finances and human capital stock, and the third sees it as an incentive for human capital formation and a source of positive externalities (creation of a globalized professional network, transfer of money, knowledge, and know-how thanks to migrants).
– The literature and empirical data show that emigration has a negative impact on public spending on education (due to the lack of return on investment for the country of origin) but a positive impact on human capital formation through the incentive effect induced by the probability of migrating.
– How can we maximize the positive effects of migration and minimize its negative effects so that it becomes a win-win situation? By utilizing international cooperation.
While the issue of brain drain in developing countries has been widely studied in the literature, the issue of brain gain and international cooperation in terms of migration policy is more recent.
Historically, brain gain refers to the overall benefits that the country of origin derives from migration. These include incentives for human capital formation, access to a global labor market, remittances from migrants to their country of origin, the transfer of know-how, and the building of professional networks through the diaspora.
International cooperation can be considered necessary for migration to become a win-win situation. Indeed, for developing countries, it would limit the number of migrants and/or the length of their stay abroad (by promoting temporary, circular, or return migration). For developed (and aging) countries, it would allow migration to meet labor needs without unduly increasing competition for low-wage jobs.
In Europe, the world’s leading destination for immigration, it is estimated that by 2030, without new immigration, the working-age population will have fallen by 12%. This situation would be particularly acute in the healthcare sector, which could face a shortage of nearly 2 million people by 2020.[1]. It therefore appears necessary to find solutions for migration policies. Cooperation may be one such solution.[2]
The three main schools of thought on migration: between neutrality, brain drain, and brain gain
The literature analyzing the economic consequences of migration has defended rather opposing theses.
The first school of thought, dating back to the 1960s,was descriptive (Grubel and Scott 1966, Adams 1968) or related to the well-being of populations (Johnson, 1967, Berry and Soligo, 1969). It concluded that migration was neutral in terms of compensating for the loss of human capital associated with the departure of migrants through remittances and/or the wealth left behind in the country of origin. However, at the time, migration was still considered a marginal phenomenon with little impact.
The second school of thought, also describedas traditional and pessimistic, emerged in the 1970s, led by Jagdish Bhagwati. The « brain drain » was analyzed in a more realistic framework, challenging the neutrality of migration previously put forward. Emigration was accused of inflicting a double loss on public finances: not only did the return on investment in education disappear with the migrant, but this loss was all the greater because highly skilled migrants would earn higher salaries and pay substantial taxes if they remained in their country of origin (Bhagwati and Hamada, 1974 and 1975). Later, proponents of the endogenous growth theory, developed in 1988 by Lucas, added to this thesis by introducing a new element: emigration generates an overall loss of human capital for the country of origin, which lowers the country’s per capita productivity and therefore its wealth production. Some authors, such as Haque and Kim (1995), have thus seen education policy as the main tool for countering the adverse effects of migration flows. Indeed, they adhere to the theory of endogenous growth and argue that the most skilled are the most likely to migrate. They therefore recommend that public authorities direct their education subsidies towards the least skilled so that the resulting human capital formation remains in the country of origin.
The third school of thought emerged in the mid-1990s and takes a more optimistic view of migration, introducing the concept of « brain gain » for the first time . According to this notion, emigration is beneficial for the country of origin when the possibility of migrating, by offering more professional opportunities and higher wages abroad, encourages the formation of human capital (Mountford, 1997, Stark et al., 1998, Beine et al., 2001). This approach also pays greater attention to the positive externalities of migration, such as remittances, migrants’ returns to their home countries, the network offered by the diaspora, knowledge transfers, business creation, and internationalization.
A negative effect of emigration rates on public spending on education that can be offset by international cooperation
Based on empirical data and more specific literature on the link between public spending on education and emigration, we find that there is indeed a negative relationship between these two variables in developing countries. According to Docquier, Ousmane, and Pestieau (2008), the results of an empirical study of 108 countries show that the average elasticity of public subsidies for education to skilled emigration is -0.20. A personal study from 2013 (based on a fairly small sample of 39 developing countries[3]), arrives at similar results. A 1-point increase in the emigration rate reduces public spending per student as a percentage of GDP per capita by 0.71 points.
Despite this finding, the third-generation literature highlighting « brain gain » remains relevant and based on a solid empirical foundation. Thus, the study by Beine, Defoort, and Docquier (2010)—A Panel Data Analysis of Brain Gain—based on 147 countries between 1975 and 2000, concludes that emigration does indeed increase human capital formation in the country of origin. However, these results are only valid under certain conditions: the country of origin must be a low-income country (the results are not robust for middle-income and high-income countries) and the emigration rate must not exceed 20 to 30% of the population. Another study, less general in scope but using an innovative method, is that of Batista, Lacuesta, and Vicente (2012). The authors literally test the effect of the probability of migrating on the level of education attained, having been able to calculate the propensity to migrate by collecting historical data on migrants from Cape Verde. Their results show that the probability of emigrating explains nearly 40% of the proportion of university graduates in the working population of Cape Verde. Thus, a 1% increase in an individual’s probability of migrating increases their probability of obtaining a secondary school diploma by 1.9%. However, these results should be interpreted with caution as they are not generalizable and are specific to Cape Verde, a small island where the emigration rate is well above average. Similarly, Docquier, Ousmane, and Pestieau (2008) find that the elasticity of human capital formation to the migration of the most skilled is between +3.2% and +4.2%.
Furthermore, according to the thesis of Clemens and Pritchett (2008) » for many developing countries, international migration is not an alternative to poverty reduction, but is in fact the main source of poverty reduction today. » The challenge is therefore to find an alternative variable that would allow developing countries to benefit from « brain growth » while limiting the negative effects of brain drain, particularly on public spending on education. International cooperation seems to be that variable.
International cooperation on migration: a strategy to increase the mutual gains associated with migration
A review of the literature on international cooperation (bilateral or multilateral agreements, new laws/rules/procedures) on migration shows that it always leads to an equilibrium that increases the well-being of each party compared to an equilibrium without cooperation.
This improvement in well-being can occur through various channels. The first is the fiscal channel. Cooperation can effectively allow migration to replace education subsidies in order to achieve an optimal level of investment in education (Stark and Wang (2002) and Naiditch & Vranceanu (2012)). Indeed, the prospects offered by migration (more jobs, better pay) make it possible to achieve the optimal level of investment in human capital. However, international cooperation is necessary to define a maximum emigration rate for the country of origin (which is all the more restrictive when its wage differential with the rest of the world is high) or a limited number of visas issued by the destination countries.
Reduced tax competition is also beneficial because it avoids the risk of a race to the bottom. In this logic, each country seeks to have the most attractive tax regime, which leads to a continuous decline in taxes that ultimately stifles public spending, particularly in education.
Finally, a last tax solution would be to create a tax on graduates when they choose to move abroad. A flagship proposal by Baghwati (1975), such a tax would benefit both countries in that it would reimburse the country of origin for its investment in education and enable the destination countries to attract skilled migrants (the country of origin having the means to provide them with a quality education thanks to the tax revenue). However, this tax has been widely criticized. It has been accused of discriminating against migrants because it increases their tax burden, thereby reducing the incentive to migrate and, consequently, to invest in human capital. However, the additional tax burden borne by migrants, in cases where they pay this tax directly, should be offset by the gains in terms of qualifications and salary that they enjoy abroad. Another limitation of this tax is the tax evasion it is subject to, as it is attractive to migrants who can easily « disappear into thin air. » One solution, however, would be for the destination country to pay the tax. The latter would make a transfer to the country of origin, proportional to the number of migrants on its territory. In theory, the destination country would be willing to accept such a transfer in view of the social (human capital, innovation) and private (tax revenue) gains it would make by receiving skilled foreign workers. Nevertheless, it should be noted that the implementation of this tax, whether borne by migrants or the destination country, whether in the form of a percentage of the migrant’s income abroad or the cost of their education, requires a very high degree of international cooperation.
Another possible channel is cooperation in key development sectors (medicine, higher education, or information technology). This could accelerate long-term growth in developing countries while protecting developed countries from unfair competition on low wages. Examples include the Raj license in the United States, which makes it easier for Indian engineers to obtain permanent resident status, and the GATS Mode 4 agreements, which facilitate the acquisition of temporary work visas for specific assignments. This type of temporary contract could also promote circular migration (Wickramasekara (2004)), which is defined as alternating periods of emigration to a host country and return to the country of origin. This migration pattern strengthens the network and the associated transfer of knowledge through the direct intermediation of the migrant when they return to their country of origin. It also prevents the loss of accumulated human capital by the country of origin or the gradual disappearance of remittances (money transfers), as is often the case with second- or third-generation migrants. However, this idea may be counterbalanced by the difficulties of integrating health professionals into systems that are sometimes very different from their own.
A third channel for cooperation on migration would be to invest in teaching skills that are more transferable and applicable internationally (Poutvaara (2005)). Such education is defined, in contrast to more specific types of education, such as secondary education (by definition less mobile) or tertiary education in strictly national fields (law, politics). Education that is applicable internationally corresponds more to any education based on science (engineering, economics, medicine), commerce, or other types of tertiary education. This would allow technologies and know-how to spread more quickly, which would benefit society as a whole. However, governments will only be encouraged to incorporate this positive externality into their education policy if there is a global compensation system in place, which requires a high level of cooperation.
Empirical test
To my knowledge, the effects of international cooperation on public spending on education have been studied very little empirically. In « A new Brain Gain theory involving international cooperation » (2013), this relationship is tested. To represent international cooperation, I drew on Bayer’s (2007) study « Diplomatic Interactions over Time and Space » and used his variable: the number of diplomatic relations a country has (out of 191 possible bilateral relations). A country A is considered to have a diplomatic relationship with a country B if A is represented in B, if B is represented in A, or if both are represented.
Furthermore, the author defines diplomatic relations as the presence of three types of representatives: the chargé d’affaires, the minister plenipotentiary, or the ambassador. With this variable, which represents only one form of cooperation among others, we find that gaining diplomatic relations with a new country increased public spending on education in the country of origin by +0.013 percentage points. This coefficient remains low but is significant, and taking other forms of cooperation into account would probably yield more convincing results.
Conclusion
Cooperation in terms of migration policy would therefore allow each party (migrants, countries of origin, and countries of destination) to benefit from the advantages associated with migration (human capital, higher wages, professional networks, tax revenues, skilled labor), while reducing its potentially harmful effects (brain drain, tax evasion, stifling of public spending). According to the viewpoint developed in this article, international cooperation could transform South-North migration into a development strategy rather than a « brain drain. »
Notes:
[1] Remarks by Cecilia Malmström, European Commissioner for Home Affairs, 2012
[2] Article based on » A New Brain Gain Theory Involving International Cooperation, » a research thesis written by the author as part of her Master’s degree in International Economics and Development at Paris-Dauphine University.
[3]A new Brain Gain theory involving international cooperation, 2013, C. Colin (Master’s thesis)
References:
– Batista, Catia & Lacuesta, Aitor & Vicente, Pedro C., 2012. « Testing the ‘brain gain’ hypothesis: Micro evidence from Cape Verde« Journal of Development Economics, Elsevier, vol. 97(1), pages 32-45
– Bayer Resat, 2007, “Diplomatic Interactions over Time and Space« , 2007, Department of International Relations, Koç University-CASE, Istanbul, prepared at the 65th Political Science
– Docquier, F. & Faye O.& Pestieau P., 2008. « Is migration a good substitute for education subsidies?« , Policy Research Working Paper Series 4614, The World Bank
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– Poutvaara P., 2005. « Public education in an integrated Europe: Studying to migrate and teaching to stay?, » ZEI Working Papers B 03-2005, ZEI – Center for European Integration Studies, University of Bonn
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