The Knowledge Economy - K.S. Pang (2012)

CASE STUDY 2: THE IMPACT OF BRAIN DRAIN (HUMAN CAPITAL FLIGHT) ON ECONOMIC GROWTH.1. Background of Brain Drain of the worldBrain Drain (also referred as human capital flight) is defined as large-scale of emigration of individuals with technical skills or knowledge. The reasons usually are come from countries and individuals. In terms of countries, perhaps the home countries are lack of job opportunities, political is instable, economic depression, health risks. Therefore, they are migrated to those destination countries with rich job opportunities, stable political freedom, and better living conditions. In terms of individuals, perhaps due to high-pay, family influence, personal preference, to explore a new environment and to improve a career in oversea.The favorable talent-receiving countries are United States, United Kingdom, Europe, and Australia and New Zealand. They are offering high-pay job opportunities, better living conditions, political stability and freedom to the talents from those favorable talent-sending countries such as Latin America, Africa, Pacific Asia, Middle East, India and China.In the sense of economic, brain drain is viewed as social cost because the emigrants was received the education and training sponsored by the government or other local organizations. Therefore, the home country is experience the draining of skilled workers and mostly believes that brain drain is harmful to economic growth. Especially for developing countries which are hunger about talents to develop their economy.Brain drain has cost the African continent over $4 billion in the employment of 150,000 expatriate professionals annually. For some examples, Ethiopia has lost 75% of its skilled workforce between 1980 and 1991, which as stepping stone to this country to get out of poverty. Nigeria, Kenya and Ethiopia are believed to be the most affected. In the case of Ethiopia, the country produces many excellent doctors, but there are more Ethiopian doctors in United States than there are in Ethiopia.How about nations of Asia? China is the biggest worldwide contributor of emigrants in 2007 with a record of 65,000 Chinese migrated into United States, 25,000 to Canada and 15,000 to Australia for temporary and long-term settlement. Obviously, the brain drain of China is getting serious. With the rapid GDP growth of China, is getting more Chinese parents are afford to send their children to study in oversea universities. Most of the oversea Chinese students choose to stay abroad.In Iraq, brain drain was fostered due to lack of basic services and security. Professionals were started outflow obviously from era of Saddam Hussein. Around 4 million Iraqis are left the country. Iran was ranked highest in brain drain among 90 measured countries by IMF on 2006. Iran was estimated annually 180,000 Iranian left the country due to insufficient job opportunities provided and unpleasant domestic social conditions. In the case of Pakistan, due to political instability and poor job opportunities, Pakistan is significantly affected by brain drain phenomena due to large-scale of skilled workers were migrated to Europe, North America and Middle East. According to empirical studies, over thousands of doctors, engineers and scientists are said to move abroad annually. For Philippine, the skilled workers are physicians, nurses and engineers, and unskilled workers are general workers and house maids commonly seek better job opportunities in developed countries such as the United States, Canada, Australia, Japan, Singapore, and the Middle East. According to evidences, Philippines have 110,577 of its nurses and 15,859 of its doctors residing in the OECD countries.India has 1.5 million of its citizens living in OECD countries with 69% of them being graduates. India loses $2 billion annually because of the emigration of computer experts to the U.S. Besides that, Indian students going abroad for their higher studies costs India a foreign exchange outflow of $10 billion annually.South Korea currently has 885,885 of its citizens residing among all OECD countries. Around 70% of them being graduates and this are 1.39% of its population. Singapore has 67,560 residents residing in OECD countries in year 2000 with 50,019 of them being university-educated. It is only slightly behind Malaysia with 74% of its emigrants into the OECD countries having tertiary education.

2. Background of Brain Drain of MalaysiaThe recent report by the National Economic Advisory Council (NEAC) on the New Economic Model (NEM) stated that we are not developing talent and what we do have are leaving. This report is to focus on the brain-drain trends and treated brain drain as a stepping stone for Malaysia to move up as an advanced and high-income nation.The report says that currently more than 350,000 Malaysians are working abroad with over half of them having tertiary education. According to figures compiled in year 2007, 40% of Malaysian emigrants headed for Singapore. For the other emigrants, 30% go to OECD countries (Australia, New Zealand, the United States, Canada and Britain) 20% to Asian countries (Brunei, Philippines, and Indonesia) and 10% for the rest of the world.According to World Bank, Malaysians residing overseas numbered only 9,576 in 1960 while the worlds total registered migration was 382,912 per nation. By 2005, the worlds registered migration increased to an average of 919,302 per nation, an increase of 2.4 times. However, the emigration numbers rose to 1,489,168, an almost 100-fold increase over the 45-year period.Its generally believed that, our factors are better career opportunities abroad, serious corruption, social inequality, lack of religious freedom and educational opportunities, and the government's Bumiputera affirmative action policies.

3. Problem StatementWhy study about the Brain Drain in Malaysia?Brain drain is a hot issue brought by our government on recent years and stated in Tenth Malaysia Plan (10th MP). Under fourth thrust: Developing and retaining a first-world talent base which aimed to increase the efficiency of Malaysia labor market. To attract more skilled workers back into the country, therefore a Talent Corporation will be established to identify skill shortages in key sectors, to attract or retain necessary skilled human capital and to spearhead the initiative to attract the Malaysian back home to contribute to the needs of skilled manpower.But according to migration dataset of World Bank, Panel Data on International Migration, 1975-2000 The highly educated Malaysian emigrants are 23.9%, 28.7% and 22.9% of total Malaysian emigration on year 1980,1985 and 1990, it was decreased to 11.9% and 10.3% on years 1995 and 2000. In addition, Beine, et.al (2006) show the new estimates to measure skilled migration Brain Drain 22+ (skilled emigrants arrived OECD countries after age 22) for Malaysia is 16.1% decreased to 6.9% on years 1990 to 2000. Brain Drain has caused Malaysia's economic growth rate to fall to an average of 4.6% per annum in 2000s but if compared to 7.2% in the 1990s brain drain of Malaysia actually is lesser significant on recent years.In this highly competitive global environment it must be reminded that Malaysia is not alone in losing the best talents to the OECD countries. Stopping the talent outflows seems to make sense and reducing the emigration should ease the pain. However, seeking to limit mobility of population may not be the most efficient way to tackle the problem. In addition, Malaysia should not ignore the considerable benefits that migration can deliver to local economies.A question arises Are brain drain is always negatively related to economic growth? According to Migration and Remittance Factbook 2011, the stock of foreign workers in Malaysia is 2.35 million among services, construction, and agriculture sectors. These huge amounts of foreign workers are competing with Malaysian in getting a job. Therefore, brain drain has decreased the unemployment rate of the home country. If the emigrants are unemployed in home country, so their departure should not result any losses. In other cases, the departure of skilled workers is compensated by the arrival of skilled workers from another country. As shown in the OECD's 2004 Trends in International Migration the South African doctors moving to OECD countries while being replaced by Cuban doctors. According to Alvarez, et.al (2011) stated that the impact of importing foreign talent is generally good for the performance levels of local co-workers. In year 2000, only 5,750 US citizens, 8,800 Japanese, 3,100 Australians and 1,250 New Zealanders are residing in Malaysia. Most of them are professionals in manufacture and services sectors. It depends on how our Malaysia Second-Home Plan works to attract more foreign skilled workers to join Malaysia workforce. Since Malaysia is aimed to become an advanced-technology country under the Vision 2020. We need to send Malaysian abroad to receive education and skill in order to increase the labor productivity. Stark, et.al (1997) stated that country with high skilled migration eventually can end up with a higher average level of human capital per worker. Mountford (1997) brain drain increase average productivity and equality in home country since the temporary of emigration may permanently increase the average level of productivity.Besides that, emigration can increase the incentive to acquire education, skills and additional education investment. Stark, et.al (1997) has argued that brain drain may lead to positive results in this prospect even in the poor developing countries such as Cuba. Economist Maurice Schiff also has stated that the average education level of developing countries with brain drain remains higher than those without migration. Therefore, brain drain is not always negatively related to economic growth. We cant conclude unilaterally that the brain drain effects are negative by solely refer to the decreased GDP value. Brain drain can only explain the effect partially about migration's overall impact of a country. When all the other impacts are taken into account, the net impact may actually be positive.

4. The Literature Review of Brain drain and Economic growthAs to overthrow the traditional view of brain drain is harmful to economic growth. I found some literature studies in this paper and try to show that brain drain maybe bring beneficial effects to economic growth.First of all, emigration is commonly being recognized that will increase the incentive to acquire more education and skills in the sending countries. Therefore end up with higher human capital accumulation. Stark, et.al (1997) the country with high skilled migration eventually can end up with a higher average level of human capital per worker. And the author also argued that brain drain may lead to positive results in this prospect even in the poor developing countries such as Cuba. Schiff (2005) stated that the average education level of developing countries with brain drain remains higher than those without migration. On theoretical level, when this domestic "brain gain" is greater than the "brain drain," the net impact on welfare and growth may be positive. It is important to note that brain drain need not have negative impacts on a sending country's stock of education and skills. Beine, et.al (2001) brain drain migration is potentially beneficial to human capital formation due to the fact that migration opportunities foster investments in education since it is awarded a higher expected return when the economy is opened to migrations. However, migration also gives detrimental effect to economic growth but depends on which effect dominates. However Hemmi, (2005) was extended the result of Beine and show that the existence of opportunity to migrate might exert an opposite influence on the long run growth rate and the transitional growth rate. Again according to another study of Beine, et.al (2011) reveals that skilled migration prospects foster human capital accumulation in low-income countries. In these countries, a net brain gain can be obtained if the skilled emigration rate is not too large or does not exceed 2030%. In addition, they found no evidence for both middle-income and high-income countries. Chen (2008) If households perceive that there is a high probability of migration in the future, they will invest more in their education, thereby increasing the human capital accumulation and also will in turn induce a higher probability of migration.Secondly, brain drain may actually increase the average productivity level in their home country. Mountford (1997) actually brain drain will increase average productivity and equality in since the temporary of emigration may permanently increase the average level of productivity. Dustmann (2011) migration probably may generate brain gain instead of brain drain. Since some countries are learning centers where one can learn skills more effectively, including skills that is applicable to the home country. Therefore, emigrants maybe will return to apply their acquired skills in the home country. Moreover, those who return have a relatively high endowment of the skill that is more valued in the home country.As claimed by some other authors, Brain drain may increase the income level and also reduce the inequality in the country of origin. Grubel and Scott (1966) are claimed that emigration should be welcomed whenever two conditions are met. Because the emigrant improves his own income and does not reduce the income of those remaining behind. According to Mountford, et.al (2011) the emergence of the brain drain as a dominant pattern of international migration is likely to reinforce the current evolution of the world income distribution which is also described in another study of Sala-I-Martin (2006). In the short run it is possible for world inequality to fall due to rises in GDP per capita in large developing economies with low skilled emigration rates for examples are India and China. But in the long run, inequality in the world distribution of income may increase as the countries which lose from the brain drain will also grow large in terms of population.On another hand, brain drain also may increase global labor mobility and some authors believe that this is good for economic growth. According to Beine, et.al (2006) concluded that brain drain migration contributes to an increase in the number of skilled workers living in the developing countries. The author suggests that the traditional perception of the brain drain, often viewed as a kind of predation through which rich countries extract human resources from the poor countries has no empirical justification at an aggregate level. Besides that, it is also supported by another study by Winters (2004) who stated that increased labor mobility actually makes good economic sense to the sending countries. Commander, et.al (2004) suggests that the emigration of IT workers from India is not necessarily having adverse impacts on India's development.

6. Summary, Conclusion and DiscussionAs discussed in the background and literature review, it is generally recognized that brain drain is harmful to economic growth especially for those developing countries that are hunger about talents to develop their economy. Emigration of skilled labor causes the home countries experience the draining of talents. The government of Malaysia also believed that this is a stopping stone for us to develop as advanced and high-income nation.Furthermore, some previous studies claim that brain drain can actually become a brain gain. These studies believed that the emigrants will acquire skill and knowledge abroad and brought back to their home nation and in order to increase the productivity level. Besides that, the opportunity to emigrate will foster incentives to acquire more education. Therefore, the human capital accumulation will be increased. Under these dilemmas situation, therefore, it is important to determine the effects of brain drain and remittance on economic growth in Malaysia.

7. Policy ImplicationWe understand that the emigration is harmful to our economic growth. However, seeking to limit mobility of population may not be the most efficient way to tackle the problem. Since Malaysia is aimed to become an advanced-technology country under the Vision 2020. We need to send Malaysian abroad to receive education and skill in order to increase the labor productivity. Therefore, we suggest compensate these talents lost by employ more skilled foreign workers. In year 2000, only 5,750 US citizens, 8,800 Japanese, 3,100 Australians and 1,250 New Zealanders are residing in Malaysia. Most of them are professionals in manufacture and services sectors. It depends on how our Malaysia Second-Home Plan works to attract more foreign skilled workers to join Malaysia workforce.8