Brain Drain and Economic Performance in Small Island Developing States

Brain drain is a major issue for Small Island Developing States (SIDS). Econometric analysis confirms that smallness has a strong positive impact per se on emigration rates. On average, 50 percent of the high-skilled labour force in SIDS has left their country, and the brain drain exceeds 75 percent in a few cases. In this paper, we document this phenomenon and study the bi-directional links between brain drain and development. We show that these interdependencies can be the source of multiple equilibria and that small states are much more likely to be badly coordinated than other developing countries and settle in a bad equilibrium. The reason is that their elasticity of emigration to economic performance is larger. After calibration, we identify an important number of badly coordinated SIDS and quantify the economic costs of coordination failure. These costs may exceed 100 percent of the observed GDP per capita. Badly coordinated small states require appropriate development policies aimed at retaining or repatriating their high-skilled labour force.