Country Risk, Human Development and the Brain Drain

Document Type : Research Paper

Authors

1 M.Sc. in Economics, Department of Economics, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran.

2 Associate Professor, Department of Economics, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran.

3 M.Sc. Student in Economics, Department of Economics, Faculty of Humanities and Social Sciences, University of Kurdistan, Sanandaj, Iran.

Abstract

Extended Abstract
Purpose: Brain drain is one of the most critical challenges facing developing countries. Educated and skilled people migrate from these countries to more economically stable ones. Brain drain can reduce the capabilities and economic growth in developing countries. Human capital is significant in the theories of economic growth; as a result, less developed countries, as a source of brain drain, mainly face problems such as a low economic growth rate and a high unemployment rate. Another consequence that the countries of brain drain origin are faced with is the reduction of the economic well-being of the society. This is because productivity decreases with the removal of human capital and the government is forced to increase the cost of education. One of the ways to reduce the problem of brain drain is to raise the level of life expectancy and increase people's satisfaction and self-confidence. For this purpose, it is necessary to improve living conditions and create suitable job opportunities in countries with a low level of human development. In addition, raising education and knowledge can increase people's capabilities and improve working conditions in countries. Political instability is one of the most severe obstacles to a country's economic growth and development. The lack of political stability can lead to decreased investment, increased inflation, and economic and social problems. A low level of political stability has a negative effect on economic and financial development. This is because political instability causes an increase in risk and uncertainty in economic contracts, the structure of property rights, and tax policies for entrepreneurs. Improving the political stability of a country is an essential step toward achieving economic growth and development; countries with higher political stability have more power to create wealth. Nowadays, Brain drain is a critical issue in developing countries. Low income, high unemployment, discrimination, and lack of social justice are the main reasons for brain drain. Developing countries face political, economic and financial instability; as a result, skilled and talented individuals seek better welfare and job opportunities in developed countries. This study aims to investigate the impacts of country risk and human development on brain drain in 106 countries. To achieve the goal of the study, the countries in question are divided into three groups including countries with a low political risk (44 countries), a medium political risk (48), and a high political risk (14 countries) from 2007 to 2020. The research is conducted through the fixed panel method, the standard generalized method of moments, and two-stage generalized method of moments. The results of the research show that country risk and its sub-indices in all the three groups of countries have a positive effect on increasing brain drain. This effect is greater in countries with medium and high political risk levels. Also, the human development index negatively and significantly affects the brain drain in the studied countries. To reduce the level of brain drain, it is suggested for policymakers to give priority to providing suitable conditions for business and investment in the country so as to increase job opportunities and improve economic conditions.
Methodology: In this research, both one- and two-step methods have been used to prevent single effects. Two tests are proposed to ensure the appropriateness of using this method for estimating the model. Initially, the Sargan test is used to demonstrate the validity of the instrumental variables. The second test includes a) the first-order correlation test AR and b) the second-order AR. According to Arellano and Bond (1992), in GMM estimation, the disruptive terms should have first-order serial correlation, not second-order one (Arellano & Bover, 1995).
Findings and Discussion: The results indicate that country risk and its sub-indices positively affect brain drain in countries with low, medium, and high political risks. However, this effect is more potent in medium- and high-political-risk countries. The human development index also negatively and significantly impacts brain drain in all countries. As an important finding, the effect of country risk and its sub-indices on brain drain in countries with low political risk levels is less than that in countries with medium and high political risks. In fact, in countries with low risk levels, the effect of uncertainty and the risk of brain drain is less; in these countries, investment security is high, and investment laws and regulations are usually substantial. Moreover, Human development can be considered as one of the factors to reduce brain drain. Poverty and unemployment will decrease by increasing education, improving health, and increasing access to economic opportunities, job opportunities, and entrepreneurship. Also, human development can improve living conditions and social security, reducing brain drain. As a comprehensive and inclusive solution, it can help to reduce brain drain in different countries.
Conclusion and Policy Implications: Brain drain has become a critical issue in poor and less developed countries. This issue in developing countries is primarily due to political, economic, and financial instability. For this reason, skilled and talented people migrate to advanced countries for better welfare conditions and job opportunities. This issue causes a decrease in human capital and, as a result, a reduction in the economic growth and development of the countries of origin. In addition, brain drain causes discrimination and social injustice in developing countries because people with high abilities migrate to developed countries, while people with fewer abilities and without particular expertise remain in their country of origin. The results indicate that country risk and its sub-indices positively affect brain drain in countries with low, medium and high levels of political risk. However, this effect is greater in countries with medium and high political risk levels. Also, the human development index negatively and significantly impacts brain drain in all the studied countries.

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Main Subjects

References

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The Journal of Economic Policy
Volume 15, Issue 29
September 2023
Pages 241-282

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