Capital flight causes brain drain and ruins innovation

Some recent literature on the effects of skilled migration tends to present the brain drain as an opportunity for sending countries. In fact, papers such as Mountford (1997), Beine et al. (2001) and Stark and Wang (2002) argue that a well managed migration rate, making available higher wages (abroad) for the most skilled, can create an incentive to invest more in education, thus producing an increase in the average (after migration) domestic level of human capital. As a consequence, skilled emigration may turn out to have beneficial consequences for welfare and growth in the home economy. In particular, Stark and Wang (2002) highlight the possible role of a positive migration chance as a substitute for educational subsidies in less advanced countries, in order to reach the socially optimal level of human capital. 2This argument may admittedly fit quite well the case of developing countries (whose growth is not led by innovative production), and then the so-called South-North brain drain. However, it proves less satisfactory with reference to the North-North high-skilled migration, since it neglects the central role played by innovation in developed economies, and by the interaction between firms’ and workers’ decisions (investments in skills and new technologies, respectively). In fact, policy makers in industrialized countries do not care only about human capital per se: they are rather concerned with the possibility to translate it into effective R&D and innovation. 3Consider, for instance, the case of Europe. 4One of the main concerns of European authorities in the last decade has been to fill the innovation gap with the U.S.; yet, up till now, the approach to implementing the so-called Lisbon strategy has had very limited success, and the goal of making the Union “the most competitive and dynamic knowledge-based economy in the world” by 2010, seems completely out of sight. In fact, the European Innovation Scoreboard (European Commission, 2003) reports how Europe is still lagging behind U.S. with respect to 10 (out of 11) innovation indicators, the widest gap concerning high-tech patents. Two years later the same publication (European Commission, 2005) says that “… the innovation gap between the EU25 and the US is close to stable”, while “… the innovation gap between the EU25 and Japan is increasing” 5The notable exception to this large and persistent gap between Europe and the U.S. is represented by the number of S&E graduates. However, as a matter of facts, many of these skilled professionals, especially top-class researchers, are crossing the Atlantic Ocean. As pointed out by the Time magazine (2004) in a recent issue devoted to Europe’s brain drain [2] “… one of the most worrying signs of their (European leaders’) failure is the continued drain of Europe’s best and brightest scientific brains, who finish their degrees and pursue careers in the U.S. […] No wonder the U.S. has 78% more high-tech patents per capita than Europe, which is especially weak in the IT and biotech sectors.” 6If we look at country data on innovation in historical perspective, we see that, inside the OECD, some countries (Japan, Australia, Canada, Scandinavian countries, Germany, Switzerland) are converging to the U.S. innovation potential, along the last decades, while others (especially big European countries like United Kingdom, France, Italy and Spain) definitely are not (see for instance Furman et al., 2002). As far as education is concerned, we realize that, on the contrary, all European and OECD countries are progressively reaching levels of schooling comparable to the U.S. (see Barro and Lee’s data (2000) for some compelling evidence). 7Since education and R&D are usually considered to be intimately related, one could ask why only a limited group of countries has succeeded in translating higher education into stronger innovation activity. Integrating skilled migration in the analysis, we could suggest an answer to this question: although many other factors may lay behind those stylized facts, R&D-convergence might have been hampered by the consistent human capital flight mentioned above [3]