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Remittances and the brain drain

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  • Riccardo Faini

    (Università di Roma Tor Vergata, Centro Studi Luca d’Agliano, IZA and CEPR)

Abstract

In most destination countries, immigration policies are increasingly tilted toward the most skilled individuals. Whether this shift hurts economic prospects in sending countries, as argued by the traditional brain drain literature, is somewhat controversial. The most recent literature has focused on the link between skilled out-migration and educational achievements. In this paper, we emphasize a different channel. It is often argued that skilled migrants raise economic welfare at home thanks to a relatively larger flow of remittances. Skilled migrants typically earn relatively more and, ceteris paribus, will therefore remit more. However, they are also likely to spend a longer span of time abroad and also are more likely to reunite with their close family in the host country. Both factors should be associated with a relatively smaller flow of remittances from skilled migrants. Hence, the sign of the impact of the brain drain on total remittances is an empirical question. We first develop a simple model showing that skilled migrants may have indeed a lower propensity to remit home out of a given flow of earnings abroad. We then derive an empirical equation of remittances and estimate it on a large panel of developing countries. As a measure of the brain drain, we use the dataset by Docquier and Marfouk (2004) that in turn builds on the pioneering work of Carrington and Detragiache (2004). We find considerable evidence that the brain drain is associated with a smaller flow of remittances.

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Bibliographic Info

Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 214.

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Date of creation: 15 Jun 2006
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Handle: RePEc:csl:devewp:214

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Keywords: remittances; migration; brain drain;

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  1. Raghuram Rajan & Arvind Subramanian, 2005. "Aid and Growth," IMF Working Papers 05/127, International Monetary Fund.
  2. William Easterly & Ross Levine & David Roodman, 2003. "New Data, New Doubts: Revisiting "Aid, Policies, and Growth"," Working Papers 26, Center for Global Development.
  3. Beine, Michel & Docquier, Frédéric & Rapoport, Hillel, 2003. "Brain Drain and LDCs' Growth: Winners and Losers," IZA Discussion Papers 819, Institute for the Study of Labor (IZA).
  4. Raghuram G. Rajan & Arvind Subramanian, 2005. "What Undermines Aid's Impact on Growth?," NBER Working Papers 11657, National Bureau of Economic Research, Inc.
  5. Adams, Richard H, Jr, 1991. "The Economic Uses and Impact of International Remittances in Rural Egypt," Economic Development and Cultural Change, University of Chicago Press, vol. 39(4), pages 695-722, July.
  6. Oded Stark & Christian Helmenstein & Alexia Prskawetz, 1998. "Human Capital Depletion, Human Capital Formation, and Migration: A Blessing in a "Curse"?," Departmental Working Papers _096, Chinese University of Hong Kong, Department of Economics.
  7. William Carrington & Enrica Detragiache, 1998. "How Big is the Brain Drain?," IMF Working Papers 98/102, International Monetary Fund.
  8. Samir Jahjah & Ralph Chami & Connel Fullenkamp, 2003. "Are Immigrant Remittance Flows a Source of Capital for Development," IMF Working Papers 03/189, International Monetary Fund.
  9. Adams, Richard H, Jr, 1998. "Remittances, Investment, and Rural Asset Accumulation in Pakistan," Economic Development and Cultural Change, University of Chicago Press, vol. 47(1), pages 155-73, October.
  10. Raghuram G. Rajan & Arvind Subramanian, 2008. "Aid and Growth: What Does the Cross-Country Evidence Really Show?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 643-665, November.
  11. Stark, Oded & Helmenstein, Christian & Prskawetz, Alexia, 1997. "A Brain Gain with a Brain Drain," Economics Series 45, Institute for Advanced Studies.
  12. Beine, Michel & Docquier, Frederic & Rapoport, Hillel, 2001. "Brain drain and economic growth: theory and evidence," Journal of Development Economics, Elsevier, vol. 64(1), pages 275-289, February.
  13. William Easterly, 2003. "Can Foreign Aid Buy Growth?," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 23-48, Summer.
  14. Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1, October.
    • Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1, October.
  15. Lucas, Robert E B & Stark, Oded, 1985. "Motivations to Remit: Evidence from Botswana," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 901-18, October.
  16. Burnside, Craig & Dollar, David, 2004. "Aid, policies, and growth : revisiting the evidence," Policy Research Working Paper Series 3251, The World Bank.
  17. Lipton, Michael, 1980. "Migration from rural areas of poor countries: The impact on rural productivity and income distribution," World Development, Elsevier, vol. 8(1), pages 1-24, January.
  18. Burnside, Craig & Dollar, David, 1997. "Aid, policies, and growth," Policy Research Working Paper Series 1777, The World Bank.
  19. Edgard R. Rodriguez & Susan Horton, 1995. "International Return Migration and Remittances in the Philippines," Working Papers horton-95-01, University of Toronto, Department of Economics.
  20. Bhagwati, Jagdish & Hamada, Koichi, 1974. "The brain drain, international integration of markets for professionals and unemployment : A theoretical analysis," Journal of Development Economics, Elsevier, vol. 1(1), pages 19-42, April.
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