Waikato University Economics Professor John Gibson talks in this Double Shot Interview with Bernard Hickey about research he conducted with World Bank economist David McKenzie about the impact on developing and small economies and individuals of outward migration, commonly known as the 'Brain Drain'.
Gibson said the research found that New Zealanders who leave to work overseas typically increased their personal incomes by around US$50,000 a year, but there was a net loss to the government of around US$14,000 to US$15,000 per year as they did not contribute tax revenues at home and generally didn't send remittances home. The individuals did however benefit personally from their tertiary eductations, which are partially paid for by taxpayers in New Zealand.
Gibson suggested one way to even up the balance for taxpayers was to increase the cost of tertiary education, given more than half of those in their 20s leave the country to benefit personally by earning higher wages offshore.
Few send money home and many stay away. The benefits in terms of productivity or increased business opportunities were marginal, he added.
"Perhaps the cost of tertiary education should be increased quite dramatically for individuals, because that would be one of the few things which one could put in place as a sort of leaving tax," Gibson said.
"When they leave, if there is not going to be a flow of remittances, and there's not a huge trade creation or investment boost, then maybe we need to think of some other way," he said.
"One other way would be to make the ticket out, typically tertiary education, make that more expensive."
Around a third of New Zealanders in their 30s had lived overseas and come home, while another third had never left, and the remaining third lived overseas and were unlikely to return.
'Hard to bring home'
They would be difficult to tempt home with any economic incentives, given the large pay advantages from working overseas. Those who returned home did mainly for family or non-economic reasons, Gibson said. Those who found foreign-born partners or who had PHDs were most likely to stay offshore, he said.
The research by Gibson and McKenzie, which is available here at VoxEu, found that the 'Brain Drain' was neither massively bad nor massively good for developing economies. Remittances from outward migrants often offset the losses from any income from those higher skilled workers who left, while new trade or investment from returnees and expatriates was variable and not huge, they found.
The biggest gains were to the migrants themselves, they found.
Our findings question both the pessimistic view that high-skilled migration hurts development, and the optimistic view that most countries can benefit to the extent Taiwan, China and India have from trade and investment flows. For most countries, the first-order effects are mostly an individual phenomenon – individuals stand to gain a lot from migration, and the second-order effects on others are small in comparison and seem to at least balance one another out if not also be a net positive.
In the absence of compelling evidence for massive externalities from their presence, we argue governments should not be so concerned about high rates of skilled emigration, but focus instead on the basics of providing the policy environment needed to foster growth and innovation at home.
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