Knowledge access conferred by the diaspora is particularly valuable in some of India’s most important innovations.
Economists associate long-term economic growth with technological progress, which to a great extent depends on human capital and its ability to innovate. It is therefore crucial for countries to be able to retain their highly skilled workforce or alternatively to attract it from other countries. Historically, skilled labour has moved from the developing world to developed economies in search of greener pastures — a process known as brain drain.
In practice, the costs of brain drain to the developing world in terms of loss of ideas, innovation and productivity are offset to some extent by the benefits derived from it. The expatriate population often contributes to the development of their country of origin through various channels. To begin with, the diaspora sends remittances to families back home which acts as an additional source of income. Further gains may flow back through emigrants who return with enhanced skills and greater innovative capacity. Moreover, emigration by highly talented individuals to more supportive environments leads to innovations which otherwise would not have taken place in their home country in the absence of requisite research infrastructure. In sum, skilled emigration raises the level of global innovation and some gains flow back to the developing world through the imports of products embodying improved technology.
Another important channel through which the home country can benefit from emigration is via an exchange of ideas and technologies between domestic innovators and its diaspora. A recent research paper by Agrawal, Kapur, and McHale sheds light on this very issue using Indian data.* The authors argue that the emigration of an innovator leads to a reduction in the number of domestic innovators but at the same time, it can also lead to access to foreign-produced knowledge through the links with diaspora. In other words, ‘brain drain’ can transform into a ‘brain bank’, accumulating knowledge abroad and facilitating its transfer back to domestic inventors. This effect can dominate when there are strong connections to the diaspora.
Over the years India has witnessed significant brain drain— highly talented and skilled people moving to other nations (especially the US and the UK) for better opportunities and better lifestyle. An interesting question is — what is the effect of brain drain on the Indian economy? The paper starts by reporting some stylised facts. It finds that returnees are quite rare in the sample of Indian innovators. It also reveals that innovators who leave the country come from the very top of the Indian innovator population and that returnees tend to come from the lower-end of the skilled emigrant population. The main empirical finding of the paper is that the effect of emigration of innovative human capital reduces domestic knowledge base. That is, for India the negative effects of brain drain outweigh the positive diaspora effect.
Nevertheless, these results should be interpreted with caution. As the authors themselves acknowledge, knowledge access conferred by diaspora is particularly valuable in some of India’s most important innovations. The significance of these few but notable innovations for the Indian economy is yet to be empirically established. Moreover, the sample period considered for the empirical analysis ends in the year 2000. A large number of highly- skilled emigrants returned to India during the current decade as job prospects improved following strong growth. Besides, India’s increased integration with the global economy is also manifesting in improved educational connections with foreign universities and collaborations with researchers abroad including Indian immigrants. These factors should be taken into account before any firm conclusion about the effect of brain drain on the Indian economy can be firmly established.
Nonetheless, the results reported in this paper suggest that the support of diaspora networking through informal and formal networks, which increases the likelihood of access to foreign knowledge and innovations, is critical for enhancing the benefits of emigration. This is how developing countries can draw on their talent residing abroad and turn brain drain into a brain bank.
* “Brain Drain or Brain Bank? The Impact of Skilled Emigration on Poor-Country Innovation,”Ajay Agrawal, Devesh Kapur, John McHale, NBER Working Paper No. 14592, December 2008. http://www.nber.org/papers/w14592.pdf
The author is Senior Economist CRISIL
