Brain drain: An alternative theorization

Abstract

This paper proposes an alternative way of looking at the issue of brain drain. It tries to bring into focus the crucial role of repatriated earnings of emigrants that can potentially help higher absorption of skill and sustain a higher level of skill differentiation in the domestic economy. A situation might also arise where insufficient demand for the skill-using sector gives way to an outcome in which the economy produces and exports a higher level of skilled workforce but is unable to absorb the same domestically, and this might be potentially welfare immiserizing.

Key words:

• Brain drain
• increasing returns
• monopolistic competition

Acknowledgement

The author wishes to thank Professor Abhirup Sarkar for his valuable comments and suggestions. He would also like to thank the anonymous referees for their very constructive criticisms.

Notes

¹ See a similar formalisation in Markusen (1991) where the spillover is confined within the sector due to non-tradedness of intermediate goods. Furthermore, added to this we have the requirement of X ₁ itself being non-traded.

² Admittedly, skill formation might in turn require skilled labour as an input, which we are not allowing for here to keep things simple. But to the extent we treat the price of skilled labour and its shift as exogenous to the model, as we do, the results we arrive at likely should not change qualitatively.

³ It is true that in recent times, particularly after the Y2K software crisis at the turn of the millennium, countries such as India have experienced a shift in which some skill-intensive service sectors turned tradable, namely the business process outsourcing (BPO) exports and the information technology enabled services (ITES). Even then, BPO and ITES exports were just US$5.l billion in 2004 – 5 (source: NASSCOM) and as employment providers they are not quite significant. On the other hand skill-intensive non-traded services like health, finance, insurance, legal services, real estate, etc, still constitutes a substantial part of any economy. In fact, Harrigan and Balaban (1999) find that even for the US economy, price shifts of skill-intensive non-traded goods are an important explanatory variable to account for the increase in the relative wage of skilled labour in the 1980s and beyond.