by Mr. Nguyen Duc Thanh,
GRIPS, 1st year PhD Student

  A Model of Optimal Brain Drain  

             Paper (PDF82KB) Presentation PPT (PDF36KB)

Summary:

The eleventh workshop of JVEC was held on June 26, 2004 at GRIPS with Mr. Nguyen Duc Thanh's presentation, "A model of optimal brain drain." It is an initial and simple version of his models concerning the theory of optimal brain drain.

Two waves in the development of brain drain economics were reviewed. The first wave was in the 1960s-70s, when economists argued that brain drain was always harmful to the source country. The second wave has been on the rise since the late 1990s, when a group of economists argued that brain drain may lead to brain gain. The reason is that when there is a chance to go abroad to work with higher earnings, people will have stronger motivation to accumulate human capital (skills), and therefore the total domestic human capital stock may be increased (brain gain).

The model is based on the following assumptions. First, the natural talent (ability) of workers follows a certain random distribution. Second, a worker's human capital stock is formed by his/her natural talent and the education he/she receives. Third, earning is equal (proportional) to the individual worker's human capital stock. His/her life-income is therefore equal to the difference between the worker's human capital stock and his/her education expenditure. The worker will choose the education expenditure which maximizes his/her life-income. Fourth, working abroad helps the worker to earn more than working domestically, given his/her human capital stock.

A simple mathematic model is then presented. It is shown in this model that, under some conditions, the net positive effect of brain drain will occur if probability of emigration is smaller than a critical value. This is the brain gain from brain drain. In this case, there exists a unique value of emigration probability which maximizes brain gain (optimal brain drain).

However, as the model shows, if the marginal contribution of education to human capital formation is lower than a critical level (determined by the wage difference between the host and source countries), the positive effect from brain gain is not possible at any emigration probability. The source country always loses its human capital when emigration occurs. This situation is called the "brain drain trap."

In the discussion section, participants questioned the assumption of constant emigration probability. For a more realistic model, it was suggested that the emigration probability depend on worker's skill (or his/her own human capital). This modification was expected to bring interesting results. It is also suggested that the marginal contribution of education be endogenized because the quality of education might depend on how many talented people are working within the country. Some participants advised to consider the two countries (host and source countries) in a "2-country world" general equilibrium framework. The author admitted the simplicity of his model and agreed that further development was necessary.

After the closing of the workshop, participants continued another hour of free and friendly discussion over oolong tea.