Wednesday, January 11, 2012

Why India should let engineers and doctors emigrate

One of the great frustrations of developing economies is that they spend scarce resources follow everyone's advice by educating their brightest citizens only to see them leave the country for greener pastures. And those pastures are mostly developed economies, where immigrants from the third world are often better educated than the locals. Is it still worth it to push higher education in developing economies?

Yes, would say Oded Stark and Roman Zakharenko. They base this on a simple two sector growth model. One sector, the "engineers," is productive to the point of exerting a positive externality on total factor productivity. The other, the "lawyers," does not. Workers can choose how much education to get and which career to pursue. Once you allow emigration, the general level of human capital increases, as the prospects of a foreign standard of living is a strong incentive to stay longer in school. The interesting part is that everyone is better off: engineers are better and lawyers are fewer. And such a result is not just abstract theory. I reported before on empirical examples of beneficial brain drain, for example in Fiji or Finland.

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