Sparking off the magic of diasporas

Alireza Naghavi, Chiara Strozzi 18 November 2012

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In a keynote address at the second annual Global Diaspora Forum in Washington, DC, this summer, Hillary Clinton, the US Secretary of State, said she believes that diaspora communities could help solve problems back in their home countries: “By tapping into the experiences, the energy, the expertise of diaspora communities, we can reverse the so-called ‘brain drain’ that slows progress in so many countries around the world, and instead offer the benefits of the ‘brain gain’”. In its leader article, ‘The Magic of Diasporas’, The Economist has suggested that diasporas can be a beneficial force for sending countries (The Economist 2011). Its report characterises diaspora networks as an influential economic force that help spread ideas by fostering trust through kinship ties, speeding the the flow of information, and through the return of better trained and more experienced migrants to their home countries.

The circulation of skills

The surge in the outflows of skilled emigrants from developing countries has created a growing set of controversial debates about the threats and opportunities that the outward transfer of the human capital embedded in emigrants may pose to the origin countries. On the one hand, the traditional literature on migration and brain drain presents mechanisms through which skilled emigration could be detrimental to growth. On the other hand, a growing branch of contributions argues that skilled emigration need not harm the origin countries and may even increase the potential for development, leading to a net brain gain.

The so-called brain gain effect derives from an incentive channel that works through increased expected returns to education brought about by migration prospects (Mountford 1997, Stark et al. 2007, Beine et al. 2001, 2008). An additional channel is return migration, which can induce innovation through the knowledge possessed by migrants returning from more advanced economies (Domingues Dos Santos and Postel-Vinay 2003, Mayr and Peri 2009, Dustmann et al. 2011). Finally, cross-border diaspora networks among skilled emigrants and natives may also promote access to foreign-produced knowledge and foster innovation by encouraging trade, investments, and the recirculation of information back into the sending countries (Agrawal et al. 2011, Kerr 2008, Kuznetsov 2006). Indeed, in reference to Agrawal et al. (2011), The Economist wrote: "a scientific diaspora gives countries of origin a leg-up in terms of access to the latest research, mitigating some of the problems of a brain drain" (2009).

Intellectual property rights and diaspora gains from emigration

There is little doubt in today's role of emigration in creating potential gains to the home country through diaspora networks. But can political instruments such as intellectual property right (IPR) protection be effective in transforming a ‘brain drain’ into ‘brain gain’? The answer is yes (Naghavi and Strozzi 2011). We show that although emigration out of a developing country may directly result in the well-known concept of brain drain, it also causes a brain gain effect, the extent of which depends on the level of IPR protection in the sending country.

Our theory argues that a diaspora channel through which knowledge acquired by emigrants abroad can flow back into the sending country enhances the skills of workers in the innovation sector of developing and emerging economies. The protection of IPRs increases returns to skills, attracting workers into the innovation sector. This in turn increases the fraction of the population active in the innovation sector who gain from the skills acquired abroad. Additionally, IPRs limit emigration to the most skilled, thereby preserving human capital in the south and increasing the skill intensity of the knowledge that flows back to the south. As a consequence, the protection of IPRs increases the magnitude of potential benefits from diaspora, making it more likely for the gains to outweigh the negative effects of brain drain on innovation, and thus facilitating a potential net brain gain.

Turning brain drain into brain gain

This analysis reveals for the first time a relationship between emigration and IPR protection in determining the evolvement of skills and innovation in the sending country. It points at this opportunity provided by emigration for the sending country and suggests that the benefits can best be realised in an environment with strong IPR enforcement. The theoretical results predict that capacity building through favourable institutional frameworks such as a strong IPR regime is a crucial step for developing countries to reap the benefits of diasporas.

Empirical approach

To test the predictions, we provide an empirical investigation based on a sample of 35 emerging and developing countries with data ranging from 1995 to 2006. We measure innovation through the number of resident patents with data taken from WIPO (the World Intellectual Property Right Organization). Resident patents represent the number of patents granted in each country to its residents by the local national patent office. The stringency of IPR protection is instead captured by the index compiled by Park (2008), which in our ranges from a minimum of 1.08 up to a maximum of 4.54. In 2006 the two countries with the lowest degree of IPR protection are Bangladesh and Iran (with an index lower than 2), while in the same year Hungary and Bulgaria are the two countries with the highest degree of IPR protection (with an index higher than 4.5). In the same year, China has an index of 4.08 and India of 3.76. The findings show that the developing economies characterised by an index of IPR protection greater than 3.6 can exploit the beneficial effects of emigration on innovation. With data taken from 2006, this implies that an increase in the number of emigrants by 10% in China leads to an increase in the number of patents there by 1.3%. The same increase in Iran leads to a decrease in the number of patents there by 4.6%.

Both institutions and migration promote innovation

These results shed light on the joint role of institutions and migration in promoting innovation. Political instruments such as IPR protection can be used to make a win-win game out of emigration by fostering diaspora knowledge networks. In short, brain drains can become brain gains with the right institutions.

References

Agrawal A, D Kapur, and J McHale (2011), "Brain drain or brain bank? The impact of skilled emigration on poor-country innovation", Journal of Urban Economics, 69(1), 43-55.

Beine M, F Docquier, and H Rapoport, (2001), "Brain drain and economic growth: theory and evidence", Journal of Development Economics, 64, 275-289.

Beine M, F Docquier, and H Rapoport, (2008), "Brain Drain and Human Capital Formation in Developing Countries: Winners and Losers", Economic Journal 118(528), 631-652.

Domingues Dos Santos M, and F Postel-Vinay, (2003), "Migration as a Source of Growth: The Perspective of a Developing Country, Journal of Population Economics, 16 (1), 161-175.

Dustmann C, I Fadlon, and Y Weiss (2011), "Return migration, human capital accumulation and the brain drain", Journal of Development Economics, 95(1), 58-67.

Kerr, W R (2008), "Ethnic scientific communities and International Technology Diffusion", The Review of Economics and Statistics, 90(3), 518-537.

Kuznetsov, Y (2006), "Diaspora Networks and the International Migration of Skills: How Countries Can Draw on Their Talent Abroad", The International Bank for Reconstruction and Development, World Bank, Washington D.C, World Bank Publications,.

Mayr, K and G Peri (2009), "Return Migration as a Channel of Brain Gain", Berkeley Electronic Journal of Economic Analysis & Policy, Contributions, 9(1), Article 49.

Mountford, A (1997), "Can a brain drain be good for growth in the source economy?", Journal of Development Economics, 53(2), 287-303.

Naghavi, A and Strozzi, C (2011), "Intellectual Property Rights, International Migration, and Diaspora Knowledge Networks," IZA Discussion Paper, 5864, Institute for the Study of Labor (IZA), (Previous title: “Intellectual Property Rights, Migration, and Diaspora”).

Stark O, C Helmenstein and A Prskawetz (1997), "A Brain Gain with a Brain Drain", Economics Letters ,55, 227-234.

The Economist (2009), "Give Me Your Scientists...", March 7.

The Economist (2011), "The Magic of Diasporas", November 19.

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Topics:  Global economy International trade Migration

Tags:  immigration, trade, emigration, IPR, diasporas