Beyond Remittances: Migrants and the Circulation of Brains

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Every time the United States approaches an election cycle, migration policies become the subject of heated—if not evidence-based—debate. This year is no exception, as demonstrated by the exchange between immigration opponents and sons of immigrants on the stage of the Republican presidential debate.

Discussion of migration typically gravitates to the subject of remittances: migrants send a portion of their earnings back to their families still residing in their countries of origin, creating a very important capital inflow for some countries in the region, particularly in Central America. But do the home countries of these immigrants benefit from anything else? And do the receiving countries benefit somehow?

In recent work performed jointly with Hillel Rapoport from the Paris School of Economics, we look at the ability of migrants to transfer knowledge that can translate into higher sector specific productivity shifts. In particular, we ask whether migrants play a role in expanding the export basket of their receiving and their sending countries.

What is the basis for this hypothesis? The idea is simple. Often, what makes us more productive in certain tasks is our accumulated experience. A surgeon is a good surgeon not only because she spent a few good years sitting in lectures in medical school, but also because she ‘learned by doing,’ and received a ‘master-to-apprentice’ training that cannot be found in textbooks. Like doctors, workers in every economic sector can also become more productive by acquiring tacit knowledge, i.e., the type of knowledge that is acquired through experience and training.

This knowledge, however, is very hard to acquire and even harder to transfer. In fact, it is believed that its transmission often requires human interaction. This is why the economic literature has consistently found that knowledge diffuses very slowly across the globe. Thus, it would be natural to think that when migrants move around, tacit knowledge also moves with them, perhaps inducing productivity shifts in their receiving countries. Is this the case?

It is, indeed. In particular, our paper shows that a large stock of migrants from a country that is an exporter of, say, keyboards, is a strong determinant of the ability of the receiving country to also export keyboards from scratch within the next ten years. The ability of a country to start exporting a new product from scratch is, in fact, associated with a positive sectorial shift in productivity (after controlling for global demand). We also find that emigrants explain the emergence of new sectors (exported in the receiving countries) in their countries of origin. Thus, our results suggest that migrants play a role in expanding the export basket of both their receiving and sending countries through the diffusion of knowledge.

The fact that labor flows, perhaps more than capital or goods, are an important determinant of knowledge transmission, can explain the slow process of technology and knowledge diffusion across nations.

What can we say about policy? In general, rarely is a link made between  migration and productivity policies. However, the evidence suggests that such a link does, in fact, exist through the transmission of productive knowledge. The recent IDB Development in the Americas report, Rethinking Productive Development, tells the story of how the Chileans, in order to boost the offshoring sector in the economy, considered providing temporary visas to workers from India because the local Chilean labor force did not have the knowledge required for the industry to take off (whereas the Indians did).

Typically, large firms send their workers abroad for training. Small firms, however, are unable to do so because the externalities are high: the recently trained (and more productive) workers could leave their posts at the small firm to go to a larger firm. In this case, only the large firm would benefit from the investment the small firm did. While governments do have in place systems to subsidize study abroad for their citizens, this is mostly for academic programs. If such a market failure exists, then it may be justifiable for governments to subsidize small firms to help them train their workers abroad and promote the circulation of brains.

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The Author

Dany Bahar

Dany Bahar

Dany Bahar is an economist at the Research Department of the Inter-American Development Bank, a nonresident fellow at the Brookings Institution's Global Economy and Development program and an associate fellow at Harvard Center for International Development. His research interests are the role of international knowledge transmission and diffusion on innovation and sectoral productivity dynamics. He holds a PhD in Public Policy from Harvard University.

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