Editor:
A. R. Kemal
Literary Editor:
Professor Aurangzeb A. Hashmi
The Author
NADEEM UL HAQUE worked for twenty-two years for the
International Monetary Fund and led programmes in public sector
restructuring, economic analysis, training, and policy research. He
was educated at the University of Chicago and the London School of
Economics. Author of many articles and research monographs, he
has also contributed to various practical modernisation projects
including that of the Central Bank in Sri Lanka. He served as
Adviser to the Ministry of Commerce, Government of Pakistan
before his nomination as Director of the Pakistan Institute of
Development Economics, Islamabad.
ISBN 969-461-130-X
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system or transmitted in any form or by any means—electronic, mechanical,
photocopying, recording or otherwise—without prior permission of the author and or the
Pakistan Institute of Development Economics, P. O. Box 1091, Islamabad.
© Pakistan Institute of Development
Economics, 2005.
Pakistan Institute of Development Economics
Quaid-i-Azam University Campus
P. O. Box 1091, Islamabad 44000, Pakistan
E-mail: [email protected]
Website: http://www.pide.org.pk
Fax:
+92-51-9210886
2
Lectures in Development Economics
No. 11
BRAIN DRAIN
OR
HUMAN CAPITAL FLIGHT
Nadeem Ul Haque
PAKISTAN INSTITUTE OF DEVELOPMENT ECONOMICS
3
Contents
Introduction
Page
1
1. Brain Drain: A Literature Before
Its Time
4
2. Human Capital and Skills Matter When
Growth is Endogenous
6
3. Brain Drain vs. The Brain Gain
9
4. Defining and Measuring HCF:
Heterogeneity and Professional
Development
13
5. The Impossibility of an Independent
Incomes Policy: Incentives (Not Curbs) to
Retaining Skills
30
6. Dealing with the Problem: A Policy for
Human Capital Management
39
7. Remittances and Diasporas
43
Conclusion
44
References
46
Abstract
51
4
We trust our health to the physician our fortune and sometimes
our life and reputation to the lawyer and attorney. Such confidence
could not be reposed in people of very mean or low condition. Their
reward must be such, therefore, as may give them that rank in the
society which so important a trust requires. The long time and great
expense laid out in their education, when combined with this
circumstance, necessarily enhance the price of Labour [Adam Smith,
Wealth of Nations (1976) I 118].
INTRODUCTION*
The Brain drain literature has recently been revived.
Several new papers have been written while several
international organisations and universities are initiating
long term research projects. Developing country economists
and activists have long voiced their concerns for the short
supply of domestic skills in their countries.1 Unfortunately,
the new literature seems somewhat removed from this
expression of concern from the affected people. Rather than
examine the detail of the skill shortage and what it implies,
the new research is trying to reprove for human capital what
we already know for both the goods and the capital markets
that “openness is better than autarky”. Moreover for empirical
evidence rather than rely on survey data or anecdotal
Author’s Note: The author would like to thank Surjit Bhalla, Ahmed
Galal, Mohsin Khan, Rodney Ramcharan, Paul Streeten, and participants
at seminars at the Pakistan Institute of Development Economics and the
University of Cairo for comments and suggestions; also Natalie Baumer for
editorial assistance. All errors and omission, of course, remain the sole
responsibility of the author.
1Developing countries have been trying to highlight the problem and
attract the attention of the profession for a while. See http://
sansa.nrf.ac.za/interface/Publications.htm and http://www.thailink. com/.
2
evidence for these countries, the new studies use US migrant
data US in cross country growth regressions. Such data
cannot tell us how short the government might be in skills for
economic analysis, infrastructure management, legal and
judicial skills, as well as for market regulation, (see Box 1).
And it is this short supply that people refer to in their
discussions of the brain drain.
Box 1
Skills in Government in Low-income Countries
q
q
q
q
Economic ministries and central banks work with an
extremely limited number of economists.
Universities are staffed with professors with manifestly
obsolete skills; and hospitals lack specialised skills.
It is commonplace to observe overmanned government
departments being run by a handful of underpaid
professionals barely managing to keep their heads
above the work.
Most of the policy analysis and technical work is now
routinely done by technical assistance advisors. The
result is a piling up of reports with few people capable of,
or with enough incentive to absorb them.
This paper argues that we should view the issue of the
“brain drain” in much the same way as we look at capital
flight. In the latter literature, no one now argues that capital
3
flight is a “boon or a curse?”2 Indeed, it can be argued that in
times of war or extreme disorder, or in countries where
investment opportunities might not exist, flight of capital
might be optimal for not only does it preserve the capital but
also obtains a higher rate of return. The phenomenon of
capital flight is treated much like a barometer of economic and
political stability and good housekeeping; increased capital
flight is treated as an indicator of the need for policy
correction.
Capital flight per se is considered neither good nor bad
merely a portfolio choice of domestic citizens. However it can
be used by the citizens to militate against poor economic
policy as in Mexico in 1994. Most of the discussion on the
subject is therefore to develop good policy, markets and
instruments to induce the citizens to invest at home. The
brain drain literature does not take the view that individuals
are voting with their feet against poor policy. Instead it
regards curbs on migration as the only policy response.
Consequently, the paper argues that we could learn about the
brain drain while maintaining the analogy with capital flight.
The rest of the paper is as follows. The first two sections
will very briefly summarise the brain drain literature arguing
that with the emergence of the new growth theories the issue
is now far more important than when the idea originated. The
third section summarises some of the salient features of the
models of brain drain to understand the growth impact as well
as the issue of the brain drain. This is followed by a discussion
of how to measure the brain drain and why average
2Commander, et al. (2002) presents an excellent and up to date survey
of the paper entitled “Boon or Curse?”
4
educational achievements may not be appropriate. The fifth
section argues that one important ramification of the
phenomenon of HCF may limit a country’s capacity to conduct
an independent incomes policy. Section 6 notes another
important implication of this phenomenon may be that poor
countries also need to follow the policies of their richer
counterparts and follow a human resource management that
targets the global talent pool. Finally, issues of remittances
and diasporas are dealt with briefly. The paper ends with a
conclusion.
1. BRAIN DRAIN: A LITERATURE
BEFORE ITS TIME
In the sixties and seventies, the loss of the educated
referred to as the “brain drain” received a lot of attention.
However, it was always a bit of an intellectual curiosity as it
could not be theoretically motivated to show that it had real
effects on incomes and growth. It was a “hot topic” at a time
when the dominant growth models—Solow and CassKoopmans—were based on smooth concave production
functions and homogenous labour. Constant returns to scale,
homogenous and abundant labour and decreasing marginal
products left virtually no room for externalities. Technology
was exogenous delivered by nature by a process unknown.
Steady state convergence of incomes and growth was
attainable by all countries and all that was necessary was to
fill investment gaps [Easterly (2001)]. It was a period of
proliferation of aid and infinite supplies of labour. Not
surprisingly, talk of ‘brain drain’ was treated somewhat
disdainfully by the economics profession.3
Is the brain drain significant? The scant anecdotal evidence,
summarised in Haque and Aziz (1997) (Tables 4 and 5) suggests that the
problem may not be trivial. Given the relatively short supply of skills in
these countries, even non-spectacular numbers appear to have consequences
3
5
In this world, an externality arising from the migration
of the educated was very hard to motivate. World incomes
would improve with movements of capital. Since labour was
abundantly available, why retain it at home? In the standard
neoclassical model, each individual obtains and consumes her
marginal product; immigration therefore withdraws nothing
that the individual would have consumed anyway.
Consequently, emigration of the more skilled workers
increases the earnings of migrants without reducing the
welfare of those left behind. World income is therefore
increased [see Grubel and Scott (1966) and Johnson (1967)].
Bhagwati and Hamada (1974) pointed out that there
could be a possibility of a loss of welfare of the non-migrants as
a result of migration if there are externalities associated with
a loss of the scarce skills or from a policy of subsidy to the
acquisition of the departed skill. However, there was no
motivation for such an externality and hence the case for any
policy response to the “brain drain” was never considered to be
fully made. Moreover, the kind of policy responses that were
being proposed in that period did not elicit any confidence. On
the one hand curbs on movement of educated people were
being proposed and on the other Bhagwati (1972)
recommended a “brain drain” tax.4 As is obvious, despite the
academic interest in it, the tax proposal was never seriously
considered for implementation despite impressive revenue
estimates.5
(..continued)
for institutional capacity (see Box 1).
4The proposed tax was to be levied on the highly educated migrants
only and collected by the country of migration for a period of say 10 years.
The revenues from such a tax which were estimated to be about US$ 750
million in 1972 were to be made available to the UN for use in its financing
of development.
5This proposal received very serious attention among academics in the
mid-seventies. A major conference was held on the issue of instituting a tax
on the brain drain in Bellagio in 1975. The proceedings of this conference
6
As a result of this early literature on the brain drain, it
has been dismissed as the manifestation of mere nationalism
and indeed some nationalistic leaders have used brain drain
rhetoric to argue for control on migration or demand
payments for the migration. One group argues that the brain
drain reflects the need in international markets for specialised
human capital: human capital tends to move to regions and
occupations where its productivity is high. Nationalists regard
a minimum level of professional skills as required for the
functioning of the nation state and hold that these skills are
the property of the nation state. The debate is then often
obscured by into the age-old question of “should governments
curb individual freedom of movement?”
Interestingly enough the term “brain drain” was never
really defined. It was merely the loss of skills or the highly
educated. Since then the profession has been looking to
understand the impact of migration of those with more than a
certain number of years of education.
2. HUMAN CAPITAL AND SKILLS MATTER WHEN
GROWTH IS ENDOGENOUS
Human capital has received renewed attention as well as
relevance in recent research on endogenous growth. These
models of growth have endogenised growth by allowing for
increasing returns through endogenous technical change
such as that which arises from innovation or discovery of new
goods through increased R & D [Romer (1986, 1990) and
Grossman and Helpman (1991)]. Lucas (1988) even talks of a
direct externality associated with the transmission of human
capital through the generations. This research has also
emphasised the role of good institutions, competent and
(..continued)
are published in Bhagwati and Partington (1976) and Bhagwati (1976).
7
modern legal and regulatory frameworks and even
development of social capital and civil society [Barro and
Sala-i-Martin (1995) and Barro (1997)]. It is hard to see how
these growth-enhancing changes would not require
competence and leadership at various levels in society.
Endogenous growth models have consistently identified
human capital as an important determinant of economic
growth. Following Romer’s endogenous technical change and
Grossman and Helpman’s innovation models, increasingly the
emphasis has been on the development of new ideas and
technologies as a driver of growth and productivity. This was
strongly underscored by the 90s technology led productivity
increase in the US. Even casual empiricism suggests that the
US, the richest country in the World leads in quality
education, research and innovation.
US leads the world in research, research funding, the
number of researchers, as well as the number of patents.
While in 2001 the US per capita income was 42 times that of
the average for low income countries, its research funding was
218 times that of these countries. Figure 1 shows the
distribution of patents in the world in the last 30 years. US
owns about 40 percent of such patents and the distribution
quickly tails off (an important point to keep in mind).
Interestingly enough the USPTO data shows that in 1999,
IBM alone holds more patents (2756) than the group of 134
developing countries (2643). Even this picture of developing
country patent holding is misleading: the bulk of these
patents are held by five large developing countries, India,
China, Brazil, South Africa and Mexico. Most of the
developing countries are in any case held by non-residents
[see Eaton and Kortum (2001)]. Figure 2 shows the disparities
in human capital as measured by researchers and engineers
per 10 thousand workers. It is clear from evidence
8
Fig. 1. Distribution of Patents Across Countries.
80.00
70.00
Share 63-80
Share 01
Share Total
60.00
50.00
40.00
30.00
20.00
10.00
W
RO
s
N ic
HK
Ea
nd
Au
s
RO
in a
+
a
Ch
Ru
s si
Fr
an
ce
an
y
UK
Ge
rm
Ja
pa
n
US
0.00
Fig. 2.
Researcher and Eng/10,000 Workers
90
80
70
60
50
40
30
20
10
0
Japan
US
EU
China
LCDs Exc
Asia
9
such as this that developing countries are really not playing
the innovation/research game in any manner as they own
virtually no patents.
Empirically the impact of education on economic growth
has not shown itself as robustly as theory would imply.6 Thus
the role of education though held firm in theory remains
somewhat of a curiosity. Perhaps this is because the education
variable is measured as merely years of school attendance,
without taking into consideration quality, certification and
professional or technical attainment (another subject to which
we will return). However, the distribution of patents, research
human capital and research funding tentatively suggests that
there is a nonlinear impact of education (increasing) impact of
educational attainment on economic growth. And it is this
evidence we should focus on for understanding the HCF as
well as the human capital utilisation issue in poor countries.
While economists are debating the impact of the brain
drain, policies in the advanced countries to fuel their
innovation industry, have been increasingly directed toward
poaching human capital (see Box 2).
3. BRAIN DRAIN VS. THE BRAIN GAIN
To fix ideas let us consider a simple general equili-brium
model with two countries with heterogeneous agents.7
Pritchett (2001) shows that considerable educational investments in
low income countries do not seem to have the desired impact on growth.
Largely because we measure quantity rather than quality.
7See Haque and Kim (1995), Stark (2002) and Mountford (1997) for
models of this type.
6
10
Box 2
Poaching
US NSF tells us:
q
q
q
USA relies heavily on imported scientists. In 1995, 12
percent of all science and engineering degrees in USA
were of foreign origin; over 72 percent of these were
born in a developing country. The higher the diploma
the bigger the proportion of the foreign-born
population. 23 percent of those having a doctorate are
not USA born citizens and this proportion is even much
higher in some key areas such as engineering and
computer sciences (40 percent). [Source: The SESTAT
database of the National Science Foundation (NSF) see
NSF (1998)].
Every year US receives 500,000 foreign students who
contribute $ 7 billion to the economy making education
one of US’s finest exports. Foreign students have grown
at 5 percent per annum in the US over the last 20
years. Half the US PhD recipients are foreigners
[Regets (2001)].
50 percent of all PhDs remain in the US after
completing their education [Regets (2001)].
Skills are welcomed in advanced countries (a revealing
fact). US congress discussed BRAIN (Bringing Resources
from Academia for the Industry of our Nation Act) in 2000
to further ease access to highly qualified foreign students.
Historically, US has had a most successful “brain gain”
immigration policy.
Recently, Germany, UK, Australia, Canada and other
advanced countries have substantially liberalised policy for
highly skilled migrants. Point scoring systems that award
high marks for educational achievements are now on offer.
11
Growth in each country is driven by the accumulation of
human capital by economic agents. Agents choose to acquire
education in their youth but retain the choice of migrating
with that education in the later more productive part of their
life. Since agents in the model are endowed with differing
abilities, they also differ in their human capital accumulation
and other decisions. The two countries have differing tax
policies to capture any number of government-imposed
restrictions—from
incomes
policy
to
government
monopsonistic or price leadership position in the labour
market. Migration takes advantage of this wage differential
and contends with costs associated with it and with
assimilation in the foreign country. Individual education and
consumption decisions as well as the choice of residence in old
age are thus taken jointly to maximise the present value of
earnings over the two-period lifetime.
Almost all of these models show the obvious results that
1. The more able agents spend more time on education.
2. If domestic tax/incomes policy reduces the rate of return
to the more talented, the upper tail of the talent
distribution will migrate, (talent migration will be in
direct proportion to the earnings differential).
3. Unquestionably, openness is preferred to autarky.
Migration possibilities increase the incentive to gain an
education. The latest literature on the subject goes to
considerable lengths to show that migration possibilities
improve the incentive to education.8 This is gleefully
termed as the “brain gain”. This is a trivial extension of
the “openness is superior to autarky” result that we
learnt in elementary trade theory and detracting from
See Mountford (1997), Bienne, et al. (2002) and Stark (2002). In
Haque and Kim (1995) we found this to be so trivially obvious that it is
tucked into a small proposition.
8
12
the more serious level at which this subject should be
studied. The real issue is not the superiority of openness
but the understanding the counterfactual: maintaining
the assumption of openness (so that incentives to
acquiring education are in place), let us examine if
growth would have accelerated or not with greater
incentives to skill retention at home. Unfortunately, the
fixation of economist on the earlier curbs as a policy
response to the migration of skills has precluded a
sensible debate and understanding and forced an almost
needless debate on this issue.
In a growth model with heterogeneous agents and a
Lucas externality of education, human capital flight (i.e. loss
of skills from the upper tail of the skill distribution)
generates a permanent reduction of per capita growth in the
home country and that the magnitude of this reduction is
proportional to the fraction of the population that has
migrated [see Haque and Kim (1995)]. Because of brain drain
there may be no convergence in incomes. Not only are
permanent differences in growth likely to result but so in a
permanent difference in level of incomes across countries. The
more skill poor the country the greater the impact of human
capital flight on its growth since growth depends on the
cumulative human capital distribution.9 The experiment here
is maintaining the assumption of openness and comparing the
9This framework also allows us to examine tax-subsidy policy in the
context of HCF. In a closed economy, a education subsidy can induce a
positive growth effect while in an open economy (where labour is mobile)
such a policy could have a negative impact on growth. In a closed economy,
a uniform subsidy to all levels leads to higher growth and has lower tax
requirement than a proportional subsidy. In an open economy (where labour
is mobile) a subsidy to lower levels of education has a more positive effect on
growth compared to a uniform subsidy because of human capital flight
consequences of subsidy to higher education [see Haque and Kim (1995)].
13
counterfactual of policy to retain the skills as opposed to the
policy of letting the drain take place.
4. DEFINING AND MEASURING HCF: HETEROGENEITY AND PROFESSIONAL DEVELOPMENT
Brain drain is often defined as the international transfer
of resources in the form of human capital that is not recorded
in the BOP. As always, human capital is left undefined. Most
empirical studies of brain drain today continue to use the
number of years of education of the migrant as a measure of
skill. This measure is seriously flawed for at least 2 reasons.
• First we know that the quality of schooling varies
enormously across countries and most likely in
proportion to per capita income or the level of
development. For political reasons governments in poor
countries have expanded university capacity without
worrying about quality. Large numbers are graduated
with poor educational facilities and limited job
opportunities.
Periodically,
the
graduate
unemployment is solved by hiring of these unemployed
graduates into government. These graduates are not
comparable to those coming out of major universities in
advanced universities and indeed some of their degrees
are not even recognised overseas. Moreover when some
of these people migrate, they are not always employed
in situations that they were trained for.10
• Second, schooling levels vary even within a country:
the rich can access quality private schooling or send
their children overseas. Many children from poor
Bienne, et al. (2002) measure the brain gain using the impact of
migration on the education levels data without regard to this autonomous
politically inspired increase in education. Perhaps one approach might be to
correct for educated unemployment or the size of government employment
in such estimations.
10
14
countries are studying in the best schools in Europe
and America. Even within countries (even in the US,
and especially in Europe) the crop of the elite schools is
what most people look toward as for the supply of
private and public leaders. When the multinationals or
international agencies are looking for candidates, they
draw upon this group and not those who have been
through the average low quality public university
which is understaffed and resource starved.
To measure HCF, we should be interested in the loss of
key skills (such as scientific research, fine regulatory and
policy-making and the provision of world class graduate
education) from an economy and these skills are certainly not
captured by the measuring the number of years that some
portion of immigration might have spent in poor quality
schools in some poor country, the diplomas of which are not
even internationally accepted. We must therefore understand
heterogeneity not just in the talent distribution within a
country but also in the distribution of quality of schooling
across countries.
In some sense when we talk of brain loss or missing
human capital, we are referring to vital professional skills
that are lacking. If this is the case, we should be looking at
the development of professions in a country and see how
migration of quality professionals may be impacting on such
professional development. For obvious reasons, we assume
that talent is identically and normally distributed across
countries, we cannot argue that professional skills are
identically distributed across countries or even that they are
normally distributed. Skills depend on the quality of the
education system, the level of professional development in the
country and the availability of research funding and facilities.
Unfortunately, the level of professional development in poor
15
countries is not an area that receives a lot of attention and
hence perhaps remains much under-researched.11 In my view
this is an important approach to understanding just the issue
of HCF but also several issues related to the development of
governance, education and the civil society.
We can derive some understanding of professional
development across countries by using data available on
citations in a wide range of subjects. Using citations data, we
can derive a distribution of professional quality within
professions as well as across countries. How professional
achievements are distributed within the professions will give
us a framework for measuring the degree of professional
achievement within a country. The differences between
countries indicate to us the variation in professional quality
between countries.
Two important observations can be made on this picture
of citations data:
• The distribution of paper and citations highly skewed
across countries. This skewness is maintained even the
individual level. Very few individuals publishing
extensively or being cited widely and a vast majority
who make up the bulk of the profession. After all look at
the attention that Hawking, Einstein Freidman etc.
get. But then their contributions also match their
attention.
• Several countries do not even make it on the citations
indexes (see Figure 3). The poor countries are again
not
Even the subject of professions itself has received limited attention
from economists [see Savage (1996)].
11
16
Fig. 3. Distribution of Citations and Papers
Published Across Countries.
50.00
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
EN U
GL SA
GE AN
RM D
AN
Y
JA
PA
FR N
AN
CA CE
NA
DA
NE
TH I
T
E A
SW RL LY
IT AND
ZE
RL S
AU AN
ST D
RA
L
SW IA
ED
EN
SC SPA
OT IN
LA
N
BE D
LG
IU
M
IS
DE RA
E
NM L
AR
K
RU
SS
FIN IA
LA
PE
OP
N
LE AU D
SR ST
CH RIA
IN
A
0.00
PAPERS
CITATIONS
in that game. Clearly this should raise some questions
on the level of professional development in poor
countries and their ability to interface with the
professional progress overseas. This distribution of
professional attainment shows that measuring the
quality of human capital by years of education
completed will be misleading. Education remains a
form of apprenticeship and that apprenticeship depends
on the leadership in the profession. And most certainly,
the leadership in the professions in poor countries is not
showing up in the production of paper, patents and is
not receiving attention in the form of citations.
We can conclude that professional skill quality follows a
form of a Pareto distribution.12 Thus if we can rank all the
Much more detailed citation information can be obtained to
substantiate the hypotheses presented here. See for example, Garfield
(1998) and Batty (2002) on the geographical distribution of knowledge.
12
17
professionals in a profession by their achievements such as
citations or published papers, say from 1……….r where 1 is
the lowest rank. Then the cumulative distribution function of
ranking of these professionals would be
P(X>r) = r –a
…
…
…
…
…
…
(1)
Figure 4 presents a somewhat stylised version of
professional achievement within a profession. As it shows
professional leadership where most innovation takes place is
very small perhaps involving only a handful of people. Pareto
distributions (or Power Laws) suggest that there are a large
number of average quality professionals but very few winners
or professionals of high quality.13
Fig. 4. Distribution of Professional Quality.
1.2
% of profession
1
0.8
0.6
0.4
0.2
0
Professional quality
This “winner take all” form of labour or professional configuration is
reminiscent of Lucas (1977) and Rosen (1989). Labour market and
industrial organisation literature has long recognised heterogeneity to be
important for understanding the wages and firm size distributions.
“Superstars”—managers and leaders by managing more of their lesstalented counterparts can spread their productivity widely and hence
increase aggregate productivity. Skill complementarities hence become
important.
13
18
I suggest that when we talk of HCF or the kind of human
capital that is a loss to society which will impact poorly on
growth, we are talking of the few who are in the right tail of
the Pareto distribution of professional quality. It is the leaders
of the profession who create an interface between local
profession and progress in the profession at an international
level. But we also know that while professional skills are
distributed according to the power
law, they are not identically distributed across countries. A
situation such as Figure 5 is quite likely to prevail where the
skill quality of the profession in rich countries (urbania)
dominates skill quality in poor countries (ruralia) everywhere.
Mounting evidence on the poor quality of schooling in
developing countries substantiates this hypothesis.
The brain drain then is as depicted in Figure 5. The
leaders of a profession from a poor country migrate seriously
eroding the average quality of the profession.
Fig. 5. Professions Across Countries.
% of resident profession
1.2
1
0.8
0.6
Skill
distribution
truncated
here
0.4
0.2
0
Professional quality
Urbania
Ruralia
In sum, we should move away from trying to study the
simple educational attainments migrants to understand the
19
HCF problem. Instead a better handle would be to develop
profiles of professions and see if migration of key professionals
who could have been leaders has impacted negatively on
professional development. Moreover, in framing policy, rather
than worry about migration of the professionals, let us develop
innovative approaches to creating professional depth in poor
countries.14
The Power law distribution can also be translated into
“the knowledge pyramid,” which frames every profession
within a country. The general practitioners including primary
and secondary school teachers some skilled government and
private sector workers make up the base of the pyramid. As
you climb up the pyramid, professional with a deeper
knowledge of what their professions are needed. They must
know their subject in greater depth and have the ability to
keep up with what is happening in their professions. As we are
all aware, disciplines and professions advance at an extremely
rapid rate. Unless there are an adequate number of
researchers/advanced academics at the tip of the pyramid, the
ability of the entire profession to keep pace with the frontiers
of the discipline will be seriously impeded. With the best
professionals migrating, many countries develop professions
that are “leaderless” or “headless” (see Figure 6).
14For example, no developing country allows open international
recruitment for university professionals and researchers like the US. Nor
do they allow their researchers to hold joint appointments with US
universities. Israel has developed leading professionals using this
mechanism.
20
Fig. 6. The Pyramid of Education.
Fundamental
Researchers
100%
80%
University
Professors
60%
College Teachers
40%
Secondary School
Teachers
20%
Primary School
Teachers
0%
1
Should we worry about the loss of the upper tail of the
professional skill distribution? Or should, as argued by the
“brain gain” research, the demonstration effect of their
migration induce higher professional attainment by the
stayers? To treat this important issue meaningfully, we need
to move beyond the mere use of average educational
attainment data in the framework of a growth regression. The
impact of human capital and especially professional
development on growth, institutional development, and the
development and maintenance of social capital is not yet fully
understood by the profession. However, there are numerous
hypotheses and conjectures that one can draw out of economic
and sociological literature that should be investigated for a
21
fuller understanding of the role of human capital and hence
the impact of human capital flight. Some of these are:
(i)
Benefiting
from
knowledge
spillovers:
Innovative activity tends to be concentrated with
the US and Western Europe being the largest
source of innovations. However, innovations tend to
be fairly mobile having roughly a 2/3 impact
abroad of what they have at home [Eaton and
Kortum (2001a)]. In recent years countries such as
Sweden, Ireland and Korea have broken into the
innovation/imitation game. However, they have
achieved this through gearing up their research
efforts. For example, in per capita terms, Sweden
now spends more on research and employs a larger
number of researchers than most European
countries. It is by this intensive effort at developing
research capacity that Sweden, Finland and
Ireland have been able to participate in global
innovation.
Eaton and Kortum (2001a) conclude that “Long run
spillovers depend on country’s ability to absorb new
technologies”, and that “absorption depends on research effort,
which in turn depends on resources devoted to research and
knowledge base it is working from”. Of course openness and
trade help to connect a country to the network of innovation
but if spillovers are to be achieved, it must have the
absorptive capacity.15
Indeed smallness and remoteness may not be inherently
inimical to comparative advantage in research. Countries
In further papers, Eaton and Kortum (2001b) develop models of
growth where country productivity is a function of its efficiency as
researcher which is a combination of its research effort and its ability to
impart knowledge and learn from others.
15
22
that achieved higher level of research productivity and
growth (Australia, Finland) had significant public and
university sector research. All countries achieving high
research productivity and growth had achieved high levels of
educational attainment prior to their research success. It is
obvious that for developing research and knowledge capacity,
countries must seek to retain or obtain “brains”.
It seems that even if a country does not lead or share in
innovation, it must retain the capacity to be able to share in
the diffusion of innovation. A country must therefore invest in
R&D to be able to share in innovation (Figure 7 presents a
Fig. 7.
The Frontier: Global
Fundamental Research
Spillover
Government
and business
Academia
Fundamental
Researchers
UNIV
Link depends on
the ability of the
fundamental
research complex
to draw upon
trough of global
knowledge
RES
The peak of the
Knowledge Pyramid—
the fundamental
research complex
schematic illustrating this). This would of course mean
investing in professional and scientific developments to keep
pace with the rapidly growing research in the world.
23
Consequently, even if the country is not truly competing for
patents it must seek to do so to keep abreast of expanding
knowledge.
(ii)
The vicious cycle of poor governance and
the brain drain: Box 1 presents some well known
stylised facts of skills in government in poor
countries while Box 3 presents IMF analysis of
skills that are required for developing good
institutions in poor countries. It is clear from these
two boxes that the supply of skills do not march the
demands of modern management and governance.
All the IFIs as well as other donors have been busy
for the last 2 decades in what known as capacity
building. Additionally, the World Bank has been
doing civil service reform extensively backed by
large grants and loans.16 The results of capacity
building and TA have both been largely “less than
successful” [World Bank (2002)].
One important reason for poor governance is the
maintenance of outmoded human resource management
policies in government in many poor countries.17 For political
reasons, governments in poor countries have found it
expedient to expand employment while capping wage growth.
Similar considerations have led to the pursuit of egalitarian
policy in the government cadre so that wage scales have been
compressed and salary increases and promotions are not
16It has conducted 169 civil service reform operations supported by
structural adjusted loans in about 80 countries [World Bank (2002)].
17Indeed a major cause of HCF as well as corruption is the poor HRM
in government [see Haque and Sahay (1996) and Haque (1998)].
24
Box 3
Skills Required for Good Governance
“Institutional capacity” is often used as a shorthand for a
country’s
administrative
and
management
capacity,
particularly with respect to implementing economic policies.
This encompasses a wide range of activities:
•
the ability to collect the statistical information needed
for effective policy implementation, and to do so in line
with internationally accepted standards;
•
the ability to effectively plan government expenditure
and the delivery of public services at both the central
and local government levels;
•
the public sector’s aid
implementation capacity;
•
the effectiveness of agencies to fight corruption and
enhance governance;
•
the establishment and operation of appropriate
regulatory
and/or
prudential
frameworks
for
companies and banks;
•
the making and enforcement of rules and laws and
judicial reforms;
•
the protection of property rights;
•
and the promotion of competition and of a marketbased economic system in general.
absorption
and
project
Where capacity is weak—that is, where a government is
unable to effectively carry out its own policies—the
consequences for society can be very costly. A good example is
the capacity to make reasonably accurate budget forecasts
and run a competent monetary and exchange rate policy (my
addition).
From “The Role of Capacity-Building In Poverty Reduction”
IMF March 2002
25
merit-based. The result is that there has been a large flow
from these public sectors not only to the IFIs but also to the
multinational sector, internationally as well as domestically.
The net result is the steady denudation of the very capacity
that the donor support is trying to build.18
With poor institutions and poor governance public sector
infrastructure—personal security, infrastructure, such as
roads and railways, a clean environment, facilities to raise
children and provide a future for them—is poorly or
inadequately provided. The declining quality of such services
has often been cited as a cause of migration. Poor governance
can therefore be self-reinforcing. Once it sets, in it ratchets
taxes upwards and encourages evasion; lowers professional
standards, encouraging the migration of the better
professional leaving the poor quality professional to manage
the profession with ever weakening standards. Murphy,
Schleifer, and Vishny (1991) and Haque and Aziz (1997) have
developed interesting models to illustrate how poor incentives
can lead to a poor allocation of talent to the detriment of
governance and growth. Such societies can be stuck in a low
growth trap which may be very difficult to break out of.
Despite numerous consultant and technical assistance
reports for capacity building and civil service reform citing the
lack of scarce skills as an important constraint to
development, to date no systematic attempts at developing an
assessment of needed skills in the poor countries has been
undertaken.19 Yet it is immediately obvious to those involved
See Samad (1993). Developing countries remain concerned yet little
research funding is available for this subject.
19Considerable sums are being spent to collect data on corruption,
political and institutional arrangements, living standards etc. but hardly
any on the assessment of whether universities have teachers of adequate
quality. Such assessment may be important if domestic institution-building
is a concern given that ghost workers and unqualified appointments in
professional positions can create the impression of adequate staffing.
18
26
in technical assistance and training, that for the maintenance
of systems for supervision and regulation, provision of social
development (including health and education), development
and maintenance of infrastructure and governance in
general, key skills such as academic, accounting, engineering,
managerial, and medical are required at various levels of
quality (see Box 3). At a more general level, the continuous
loss of the educated will retard the modernisation process as
well as the development of domestic policy formulation.20
(iii) Professional standards cannot be maintained
with HCF: The Human Development Report (1992)
notes, “Emigration also reduces Africa’s capacity to
train a new generation of professionals”.21
A
“headless” profession also runs the risk of setting in
motion an adverse selection process that denudes
professional quality and resists globalisation. This
happens in two ways.
(a) First, the headless pyramid finds itself continually
unable to keep pace with global developments. For
example, syllabi begin to increasingly show their
age of the leaders who either lack the motivation
or the ability to keep pace with global research.
(b) Secondly, the leaders of professions seek to set and
enforce standards that reinforce their leadership
20My hypothesis is that this phenomenon is one important factor in
the rise of fundamentalism in the Muslim countries. As the better educated,
more globalised professionals left the more religiously inclined and less
scientifically motivate took hold of the professions and fostered
fundamentalism.
21Surprisingly, little has been done to evaluate and understand the
problem. The International Organisation for Migration has had since 1983 a
program for “Return and Reintegration of Qualified African Nationals”.
Since the beginning of the programme about 1200 nationals have been
assisted in returning to 6 targeted countries. The IOM is targeting another
1000 by the end of 1998 [Davies (1994)].
27
(Figure 8). In Pakistan, for example, science and
history syllabi were left to those who had managed
to divorce themselves from the global frontier of
knowledge and used fundamentalism as refuge.
By this means not only were they able to maintain
their own pre-eminence but also to feed students
either outmoded or false knowledge. The harm
that was done was great. Yet the system had no
one to challenge the standard setters or standards
that were set. K. K. Aziz, one of the country’s
best historians wrote about it as did Parvez
Hoodhbhoy, an MIT Physicist. But since those
who did not accept global standards now controlled
the universities, there was no debate.22
Fig. 8. Setting Standards.
Ideas and analysis
for policy
The Peak
Syllabi for all education/ quality
of teachers
Ability to bring frontier
ideas into research
Quality assurance for education
Quality of professional—Policy
analyst, manager, media etc.
Organic and endogenous knowledge
development vs. Dependence on external TA
and knowledge transfers
Institutions and organizations
required by economic growth
(iv) “Policy elites”, ownership and social capital:
Increasingly externally-driven reform such as the
Washington Consensus have been foundered
because they were either poor in design or lacked
A good quality globalised profession is perhaps the best defense
against rising fundamentalism. For this policy must be focused on retention
of good quality professionals.
22
28
adequate ownership at home among the population
at home or that domestic implementation capacity
was limited (Box 1). In the absence of domestic
policy-making capacity, the policy development
effort is undertaken by the donor community. There
are several weaknesses in this approach as outlined
in Box 4. As externally driven ideas have been
found wanting or have been resisted by the local
population, it has become clear that domestically
owned and developed ideas must be generated.
Consequently, efforts to build capacity for policy
development and implementation at a home have been
underway for a while, but with limited success. Research in
this area has increasingly led to a focus on “policy elites” and
“design teams.”23 Chicago boys in Chile, Lee Kwan Yew in
Singapore and Maggie Thatcher’s “Next Steps” office are all
reminiscent of such teams. The domestic technocracy plays a
critical role in designing appropriate reform as well as in
developing ownership of such reform. (Figure 9). It is hard to
see how good and “owned” policy can be developed at home
when the skills for making and understanding it are not
available.
In their search for a recipe for growth, economists have
turned to the foundations of good institutions and trust (social
capital). Perhaps building institutions and social capital
requires leaders, icons and role models? Could these in turn
require some domestic human capital?
Grindle (2001).
23
29
Box 4
How is Policy Analysis conducted when domestic skills
are scarce?
The answer is that it becomes the responsibility of the
international agency by default. All information on socioeconomic development in these countries is to be found in the
reports of these agencies. Domestically, there are no more
than a handful who understand these issues and reports, and
they are heavily involved in the negotiations and the work of
the international agencies. The debate on the issues is
restricted to the staff of the international agency and the
senior technocratic officials with the former having the
luxury of the time and resources to actually conduct serious
inquiry. The latter, being in such short supply and spread
thinly over the many administrative functions of the country
can, at best, act as informed discussants.
Policy ideas originate in donor and international
agency offices and are transmitted to the government.
Between these two groups decisions are taken. At times, a
limited effort is made through a seminar to inform concerned
people of the findings. Understandably, such initiatives are
often resisted locally or nullified through lackluster
implementation.
There are two important differences between this
process of policy initiation and that which is followed in the
advanced countries for the development of policy ideas.
First, most of the policy initiatives in the west are
generated through research of domestic academia and
policy institutions in the west.
Second, they are continually reviewed for their
academic quality by the standards set by the concerned
professions.
Additionally, to the extent that the “policy-think”
burden is increasingly taken on by the donor consultants,
there is less incentive on the part of domestic governments to
develop their own thinking capacity. In that sense, domestic
talent gets crowded out.
30
Fig. 9. Generating Ownership.
The Frontier: Global
Fundamental Research
Need openness and deregulation—
private participation
Societal awareness
spread of modern ideas or
Fundamental research
Domestic policy debate ---Ownership
The Peak
Organic and endogenous
knowledge development vs.
Dependence on external TA
and knowledge transfers
Institutions and
organizations required
by economic growth
In sum, for generating growth and economic
development we must understand the process of skill
development, utilisation and retention. We must work with
heterogeneous agents and a la Lucas and Rosen understand
how talented professionals can have an impact on the
productivity of those around them.
5. THE IMPOSSIBILITY OF AN INDEPENDENT
INCOMES POLICY: INCENTIVES (NOT
CURBS) TO RETAINING SKILLS
(a) Why “Human Capital Flight?”
Despite this increasing recognition of these new factors
that generate growth, the international movement of human
capital has not generated the same interest in recent years as
has that of its counterpart factor of production—physical
capital. In one of the early models of capital flight, Khan and
Haque (1985) showed that differing perceptions of risk
associated with domestic and foreign investments would drive
31
a wedge in any expectations of a parity of returns and lead to
a capital outflow. In a world where differences between the
rich and poor are determined by their capital stock alone, this
outflow reduces available investment resources and hence
results in slower growth.24
What is perplexing is why the profession and
development agencies remain fixated on curbs on professional
movement as the only response to the migration of talent.
Analogous to capital flight, flight of human capital or the
migration of the more skilled could also occur as a result of
higher rates of return to skill accumulation in the foreign
country compared to home. These differences in rates of
return may or may not arise because of policy and may persist
even if preference for staying at home is taken into account.25
Haque and Kim have examined the impact of migration of
human capital on the growth and levels of incomes in the
context of an endogenous growth model. The migration of the
skilled can be a response to poor policies at home as well as
other factors (such as capital-skill complementarities) that
seek to retain skills and can lead to not only in sustained
differences in growth but also in levels of income between
countries.
Here the analogy with capital flight must be held to
somewhat tightly. Just as no serious economic policy
recommendation suggests that capital controls are needed to
keep capital in the country, controls on migration should not
be seriously viewed as an answer to the problem of skill loss.
Again as with capital, the policy recommendation on this issue
should be based on equalising risk and transaction cost
Since then, numerous studies have emphasised this.
The higher rate of return or wage rate could be calculated adjusting
for an equalising difference for a preference for location in home country.
24
25
32
adjusted exchange rates. Recognition of the contribution of
quality professionals and sound professional development as
well as of the importance of innovation and knowledge
spillovers to the growth process has serious implications for
the policies to deal with HCF. Curbs on migration will no
longer be effective because knowledge is perhaps the most
globalised commodity but it must also be developed and
imbibed in a globalised fashion. By that I mean that there will
be cross border joint research, conferences and
apprenticeships. Furthermore as Box 4 shows the market for
quality professionals and researchers is now fully globalised
with advanced countries poaching as a matter of policy. Entry
barriers for these individuals are lowered and proactive
incentive policies are in place in the advanced countries.
There is only one conclusion to be drawn from this and that is
that poor countries have to stop thinking in terms of
independent incomes policies.
(b) The Causes and SIP
The causes of brain drain and the measures required to
stem it are often confused primarily because both proponents
and opponents become preoccupied with the curbs on
migration. The analogy with capital is perhaps appropriate
here. Just as capital controls are considered as undesirable for
the prevention of capital flight, it should be taken as given that
curbs on migration, no matter how cleverly designed, are an
inappropriate response. The prescriptions for retaining
domestic human capital are also similar to those normally
suggested for attracting and retaining foreign investment:
policies that foster market determined domestic returns to
factors of production as well as friendly and stable sociopolitical environments.
33
One approach to understanding the issue is to view an
“incentives parity” relationship in the same ways as we look at
a interest rate parity.
In order to do so, we must understand why such
migration takes place. Emigration of professional skills occurs
for three broad reasons.
First, incentive of a higher rate of return, often at a lower
risk, to human capital in the host country. This occurs for at
least the following two reasons.
One, host countries are often able to offer marketdetermined salaries at lower taxes, unlike the countries of
origin where public sector dominates the professions and has
an ethos of non-competitive wages.
Two, host countries have a stable macroeconomic and
socio-political environment that provides security as well as
substantial creature comforts, both of which often are in
question in the home country.
Second, for professional survival and growth, it might be
important to be in the professional centres that are mainly in
the advanced industrial countries. Without participation in
such centres, the risk of professional marginalisation and
obsolescence is great.
Third, and related to the second is that poor countries,
because of resource shortages or mismanagements, are
frequently unable to provide complementary inputs for the
practice of the concerned profession. For example, research
scientists in universities may not have laboratory facilities;
doctors may not have hospital equipment, etc.
34
These factors can be encapsulated in the following “skillincentive parity” equation.
WS H (1– t S H) = WS F (1–t S F) – D – PD – QL………………..SIP
The after-tax wage at home for a skill level S, can be
lower than the foreign wage rate for the same skill level to the
extent that individuals have a strong desire to live at home,
D, to the extent that other factors for continuous skill
development, PD (such as research and professional
development) are available at home, and to the extent that
the quality of life QL is generally appreciated by the domestic
residents. Whereas the residents of most poor countries have a
strong preference for living at home i.e., a high D, high levels
of taxation and poor governance lead to very negative levels
of PD and QL, making foreign residence more attractive. The
impact of issues like the quality of life, career development
and salary differences are captured well in a survey of factors
leading to the brain drain in Australia (summarised in Box 5).
Unfortunately, no such exercise has been done in poor
countries!
The design of an appropriate policy response must
recognise the need for the retention of the professional human
capital through market means and not curbs. Such an
approach does not seek to place curbs on migration. Instead, it
places more emphasis on skill retention through policies that
set WS H, D and PD, in keeping with the “skill-incentives
parity” equation above. If this form of parity is kept in mind,
domestic human capital will have an incentive to stay at
home. A lot of factors are subsumed in the two parameters, D
and PD above. For example, a survey of Canadian doctors
who migrated to the US showed that the principal reasons for
such migration were
35
Box 5
Evidence from Australia
(This is the type of survey-based data that is required to
adequately assess the problem)
q
q
q
q
q
q
Over 60 percent of respondents reported that their group
had lost researchers to overseas institutions over the last
five years. The losses in engineering, information and
communications technology (ICT) and in mathematics
were even higher.
For the more established researchers, the survey found
that the strongest attraction is the superior research
facilities and funding available overseas, followed by the
better salaries and conditions. The survey also found that
younger researchers are also attracted by the superior
research facilities and funding, followed by better career
growth opportunities.
On the recruitment side of the equation, the survey found
that there is great difficulty being experienced not only in
replacing lost research talent, but in recruiting suitably
qualified research staff generally.
The biggest impediment to recruitment of talented
researchers from overseas is clearly the low salary
structure in Australia compared with other countries. It
is apparent that a lack of research funding, and
uncompetitive salaries compared with industry also
feature as serious impediments to recruitment from
within Australia.
Comments provided by respondents, presented a litany
of problems faced by the research community, including
the low salary structure, a lack of career opportunities in
general (and for young researchers in particular), and
increasing teaching and administrative loads falling on
fewer and fewer researchers.
The survey found that there is an overall feeling of gloom
and despair in the Australian academic research
community about its ability to recruit and retain talented
research staff.
–Boyd (2001) survey of Australian university professors.
36
better opportunities including higher rates of return to
professional achievements, a respect for meritocracy, lower
taxes, and greater availability of research funding. All of
these factors pull down PD and QL. Of course all migrants
including these Canadian doctors expressed a keenness to live
at home, a high level of D. Looked at in this manner,
governments now have to place more emphasis on domestic
tax structures, wage policies, PD and QL for retaining skills at
home.
The SIP expression should also take into account
globalisation. Any casual analysis of immigration policies
around the world reveals how rich countries are continuously
biasing their immigration policies for attracting skills.
American green card rules have for years sought out the
World’s best scientists. More recently, Australia, New Zealand
and even European countries have changed immigration
policies to accommodate the migration of software developers.
WS H (1–t S H) = WS F (1–t S F) – D – PD – QL –
CM(S)………………..SIP’
Where CM = V(S) + A(S) + T……. V’ <0 and A’ < 0
CM is the total cost of migration comprising of the visa costs, V,
assimilation costs A and the direct costs of migration, T such
as buying a ticket, settling in etc. V captures the impact of
immigration policy i.e., that doctors and computer engineers
are given a green card easily and hence in negatively related
to skill costs.26 Similarly, the high skilled with a greater level
of education are more exposed to globalisation and hence find
In light of industrial country aging populations as well as oil rich
countries labour shortages, it could be argued that V(S) is nonlinear with
costs being lowered by host country policy for the low skilled as well high
skilled. Hence entry barriers exist only for the mid-skill ranges.
26
37
it easier to assimilate.27
Given the plausibility of the SIP, governments may not
be free to practice any form of a domestic incomes policy for
any appreciable length of time without generating human
capital flight.
Over the development era of the last fifty years,
governments in the poor countries have pursued a policy of
expanding the role of the government, where the government
becomes the largest employer and relies on high tax rates to
finance its mandate of development. Government employment
became the substitute of unemployment insurance. This
commitment to provide employment was not backed by
adequate budgetary resources [see Haque and Sahay (1996)].
As a result, a form of incomes policy was pursued where the
real wage was allowed to erode in the public sector while also
attempting to retain an overall egalitarian posture (see
Figure 10). The result was that the low skilled worker was
pampered while the highly skilled and professional worker
was taxed.28
In some periods CM has been made negative for the highly skilled.
For example, in the sixties and seventies, doctors were given a job offer in
the US that provided a green card as well as all costs of migration. All they
had to do was accept. Similarly, the Bangalore software people were courted
by many immigration agencies in Bangalore at the height of the dotcom
boom.
28In many cases, these countries have continued to pursue outmoded
human resource management policies where non-meritocratic policies are
pursued and often training is neither provided nor valued.
27
38
Fig. 10. Public Sector Pay Line as a Cause
of Skill Movement.Public
sector
payline,
fostering
HCF
Salary
Public sector
paying more at
lower levels
Public sector
seriously
uncompetitive at
higher levels
Grade or level
Private
sector
payline
In addition, the government also virtually nationalised
all the professions since all science, health, education and
engineering projects were in the public sector. Hospitals,
airlines, transport, media, schools and university were all
owned by the government. Not only were tax rates high, but
the government also sought to pursue uniform national pay
scales where all its employees were forces into a preordained
income scale. Equality concerns motivated policy to keep this
distribution quite compressed.29 The result has been a clear
violation of the SIP which has been prompting HCF as well as
an institutional decline.
See Haque and Sahay (1994) and Haque, Montiel, and Sheppard
(2000) for evidence on wage compression and the declining public sector
wage in developing countries.
29
39
6. DEALING WITH THE PROBLEM: A POLICY FOR
HUMAN CAPITAL MANAGEMENT
(a) Open Domestic Talent Market
As the SIP argues, to deal with the HCF problem, we
must work on the incentives rather than curbs. In short, poor
countries must have a talent management policy if they are to
develop needed institutions for growth. Structures of
governance cannot be run as unemployment insurance pools
without regard to productivity. Skills are required to run
governance institutions such as legal and regulatory systems,
central banking, revenue collection, public health and
education, and the maintenance and provision of complex
modern infrastructure.
What sort of talent management policy or HCM policy
should we develop in these countries? Perhaps it is time to
take a page from the US and industrial country immigration
practices and recognise that what matters is that the requisite
skills are deployed in key areas for the optimal delivery of
governance and not that those skills are of domestic origin
(Box 2). Like the US and many other countries, the global
market place should be used to get those skills and the
country should be willing to compete internationally for
talent. Of course domestic residents will show a greater desire
for these jobs at each skill level and be prepared to work for a
discount or at least not demand a compensation for moving.
But like their richer counterparts, less developed countries
too, should not be parochial, relying only on nationals, when it
comes to manning key managerial, administrative and
research positions. Instead they should open up all such
40
positions to the global talent pool.30
If we think in these terms the emphasis moves from
naïve ideas of curbing or taxing the “brain drain” to
managing the desired skill requirements at home. Human
capital flight then becomes relevant only insofar as it takes
away from the required skills at home. Rather than worry
about who stays or who goes, we worry about measuring
required skills and how to get the SIP right in the economy.
At the same time, by placing emphasis on the human capital
requirements of the economy, and maintaining the analogy
with capital, we can then move from the current view of
retaining human capital of domestic origins to the current
practice in advanced countries of attracting the requisite
skills from anywhere. This will make developing countries also
active in the global market for human capital that is currently
only accessed by the advanced countries. For example, it is
difficult to understand why the academic market is fully
globalised in the richer countries, with them picking
professors from all countries while in the poor countries it
remains the monopoly of domestic residents? When
governance skills are not widely available, why should
governments not delve in the international market for skills?
Moving the emphasis to SIP and HCM will bring these issues
to the forefront.
(b) Professional Development as an Objective
One of the most protected markets in many low income countries is
the talent market. Many laws are written that require key positions such as
the manager of the central bank, the stock exchange, and presidents of
universities to be nationals. Other positions, such as professors and
regulators are also considered to be only open for nationals. Yet quite
perversely, most of the policy and thinking work is done by consultants
financed by donors. Might it not be better to let the best talent, not
necessarily national, take over management and not have to continuously
rely on consultants [see Samad (1993) and Haque and Khan (1997)].
30
41
What should be our measure of skill development in an
economy? Consider the US government when it is looking for
skilled professionals to fill key positions or provide some
critical informed input into the preparation of a particular
policy. Most often, it relies on professional accreditation and
signaling. Unfortunately, in poor countries, there are no
quality institutions that provide information on skilled
professionals; nor are their any professional bodies or
associations that will verify such skills or foster the
competitive environment that will develop the required
information.
In considering the human capital needs of a society, it
seems therefore that it is appropriate to consider the state of
the professions as a barometer. There are several advantages
to the professions as a point of analysis rather than
measuring quantity of individual education.31 Professional
quality standards are set by the professional associations and
institutions and an informed debate is only conducted within
professional boundaries. Professions provide institutional
memory of all aspects related to the discipline, its
methodology and territorial dimensions. Peer review and
professional conduct standards keep members under constant
and critical review (provide reference and accreditation). Even
more important professions keep existing policy development
under review as well as prepare independent policy analyses.
In that sense professional associations may be a critical
In most developing countries, the approach has been to implement
policies received through some form of donor assistance. Chile perhaps
represents a most interesting contrast where the Chicago group
concentrated on developing Catholic University and a cadre of competent
economists. After a gestation lag, the debate in the country was elevated
and the technical backup to policy was improved. Much of Chile’s success
can be traced to that early investment by Harberger and the University of
Chicago [Valdes (1995)].
31
42
component of civil society for dissemination and critique.
How do we study professional development? One
reasonable approach might be to look at the state of key
professions to see if they are in a self sustaining position. A
reasonable goal for research in this direction should be to
derive hard statistical quantitative indicators. Guidelines for
such research can be along the following lines to judge
whether the profession is developed well enough to
• have a core of internationally competitive professionals
(a significant number although we cannot be hard on
the number);
• these individuals are networked together in a
professional association domestically; and
• the professionals as well as their domestic association is
networked
with
international
profession
and
professional associations;
• How are universities, and other academic institutions
linked into professions and professional development?
Considerable resources have gone into developing data
on human capital across countries. Yet we are no closer to
understanding the wide variation in the quality of education
among countries. Quality remains in issue as many studies
have shown that education is not as effective as theory and
historical evidence would suggest. It seems to me that the
varying levels of professional development may offer us a
better opportunity to understand the level and the quality of
human capital development among countries. Research along
the lines suggested here needs to be pursued.
7. REMITTANCES AND DIASPORAS
In a search for self-correcting mechanisms, many
economists point to remittances, the role of diasporas, and a
43
possible eventual return migration. Remittances do provide
many of the poor countries with substantial relief but it is not
immediately obvious that the remittance benefit outweighs
the human capital externality that will arise out of a well
managed HCM policy. In any case the two should not be
regarded as substitutes.
Moreover, studies of countries like Pakistan show that
remittances are typically sent by the more unskilled migrants
since they are the ones who have poor families back home who
need the money. The more skilled and educated come from
relatively richer families and hence often have means at home
to look after their families. Their remittance volumes may be
much smaller. They will eventually have investable resources
that they can bring back but only if the county appears
attractive for the purpose. In that sense they are more likely
to behave as somewhat more informed foreign investors. For
policy, it seems therefore that remittances may not be a good
substitute for HCM.
The return of the intellectual Diaspora of even the
networking of it with the domestic professional is an important
source of skill development at home. It happened quite
fruitfully in India in the recent dotcom revolution. It is
reasonable to expect that it could happen in some countries
but under certain circumstances. However, the hypothesis
that is worth looking at is that if there is a proper HCM policy
as proposed here as well as a reasonably adequate headway in
the development of the professions, such positive intellectual
Diaspora effects could be strengthened. It would be hard to see
how the impact of poor institutions and governance structures
can be compensated for by the increased participation of the
Diaspora. Ultimately, incumbents have to skillfully perform
tasks such as policy-making and implementation and
44
teaching research and innovation. Without adequate
incentives and structures, Diaspora influences will not mean
much.
CONCLUSION
The issue of human capital flight is critical to
understanding the problem of continued slow growth in poor
countries. It may be an important reason why governance has
deteriorated, education standards are declining, new
technology diffusion remains low, and domestic reform does
not take root. Unfortunately, the subject continues to remain
confined by earlier thinking of a welfare era. One strand of the
literature continues to develop models for how “openness may
lead to greater accumulation of human capital” an obvious
result that should be beyond question now. Related to this
issue are the naïve policy proposals of the sixties and
seventies that placed emphasis on curbs on migration or
taxation of the migrant. Once again, given globalisation and
the nature of the professional quality development process,
this approach is obviously self defeating. Furthermore, HCF
or the brain drain continues to be measured by the number of
years of education of the migrants without adjusting for
quality. These raw numbers have proven to be uninformative
in all manner of studies including the growth panel
regressions.
Here, we have argued that we need to focus on market
based solutions and think of incentives to human capital in
much the same way as we think of incentives to attracting
capital. Policies for the two factors off production—physical
and human capital—must be similar. Analogous to the policy
for physical capital—the maintenance of incentive parity—we
argue and develop incentive parity for human capital. Of
course, this would mean abandoning domestic efforts at
45
incomes policy that many governments in poor countries
shave been maintaining for many years.
It is argued that human capital management policies
based on skill incentives parity and with an eye to the level
and quality of professional development is a better approach
to dealing with the HCF problem. The scarce resource in a
poor country is the right tail of the professional quality
distribution which cannot be captured by just measuring the
number of years of education completed. It is professional
development that has large positive externalities on
governance, professional development, a clearly articulated
and domestically owned policy agenda and an eventual
ownership of development. Global knowledge spillovers occur
through international professional networks. To benefit from
this, domestic professional quality must be capable of
interacting with the global knowledge pool. Consequently,
inadequacy in professional development this is the
appropriate measure of skill shortage.
Talented people are being hunted down by the richer
countries. There is no reason that poor countries should also
not benefit by entering that market. To do this what is
required is to develop and understand the human capital
management policies in these countries and to identify skill
shortages and their persistence. A particular way to do so
might be to look at the state of professional development in
these countries. Doing so will develop a better under-standing
of quality levels of education. Such an approach points to the
folly of regarding the talent market as purely national. Like
the rich countries, the poor countries must also understand
the advantages of drawing on the global talent market. There
is a need to raise this awareness among these countries.
46
The donor community too has to be conscious of its role in
fostering such a community of talent in a poor economy. In
particular, donors have to remain alert to the possibility of
“crowding out” talent and fueling the brain drain which could
happen when they take over the thinking and policyformulation capacity of government. More effort might need to
be placed on policies for “crowding in” human capital through
targeting the development of domestic professions.32
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ABSTRACT
The paper argues that “brain drain” (BD) and “capital
flight” (CF) are factor responses to developments in the
domestic economy and hence should not be viewed differently
(push for CF and pull for BD), with divergent metaphors
(scared into flight for CF and pulled by gravity for BD) and
sharply differing policy approaches (maintain interest parity
for CF and curbs for BD). Consequently, it is proposed that
Human Capital Flight (HCF) might be the better metaphor.
Globalisation has increased the possibilities for the
highly educated, hence obviating domestic efforts at incomes
policy which many governments in poor countries have
maintained for many years. Recognising this, an incentive
parity for retaining and attracting skills, called a skill
incentive parity (SIP), is derived. Like the rich countries, the
poor countries must also take advantage of the global talent
market and cease the policy of protecting domestic jobs for
national talent. There is a need to raise awareness on this
issue among LDCs.
The traditional approach for measuring HCF relies on
average educational attainment figures such as years of
education completed. This measure is likely to be inaccurate
since it does not account for the extent to which educational
attainment is of global quality. Global knowledge spillovers
require professional development to a common global quality
level. Policy must, therefore, take as its objective professional
development to an international level rather than mere
quantity indicators for education.