Brain Waste, Educational Investments and Growth in Transitional Countries

The paper explores the relationship between skilled migration, investments in education and economic growth in transitional countries. The brain waste phenomenon implies that skilled immigrants work abroad in jobs for unskilled labor. Therefore their qualifications are not properly used. The model developed here shows that brain waste is doubly-detrimental to transitional economies. Firstly, as described in traditional literature on brain drain, the sending countries lose considerable amount of their human capital as many skilled individuals leave the country. As the human capital stock in these countries is reduced, so is the economic growth. Secondly, there is another negative ex ante effect: the migration perspectives lower the return on human capital, so many individuals give up studying in order to migrate abroad. This "negative brain effect" additionally reduces the growth rate of the home country. Some empirical evidence confirming the predictions of the theoretical model is presented