Brain Drain?

The internet was in its infancy, back when I joined graduate school.  Major research universities were connected, of course, and there were plenty of groups that were focused on specific topics.  One of those groups was soc.culture.indian, which was about all things India--from cricket and politics to movies and cooking.

One of the more frequently passed around and commented posts there was about the "n+1" syndrome that apparently affected plenty of students from India.  Those ill with this syndrome will typically tell themselves, and their friends and family, that they would return to India in "n" years.  And, with every passing year, with various life changes, that "n" continued to remain the same number, however.  The "n+1" was about the mind that was conflicted between staying in the US versus returning to India.

I had no such conflict.  And if anyone asked me about my plans, I added my own funny line.  "It is a country with hundreds of millions of people.  They are not going to miss me."  Ha ha.

Intellectually, there was the interest in brain drain.  If the talented leave, then what about the development of the country?  And, what about the investment the country had made in those who leave?  Should there be a tax on the incomes of these expats?

It has been more than three decades since.  The Indian diaspora is the largest in the world:

India has the largest number of persons born in the country who are now living outside its borders. The number of Indian-born persons residing abroad numbered 17 million in 2017.

That is to be expected from a country whose population exceeds that of the population of the entire African continent by a 100 million people.  Let that sink in: India's population is greater than the population of the entire African continent.

I am an Indian-born person, though an American citizen for a long time.  Most Indian-born persons living and working outside India carry only Indian passports.  Their connections to India means that there is one heck of a money flow from the expats to the home country.  How much do the Indian expats send home?

India retained the top position as recipient of remittances with its diaspora sending about USD 69 billion back home last year

69 billion dollars.

I tell ya, they don't miss me one bit!  My exit was no brain drain; as the old joke goes, with my move from India to the US, maybe I even simultaneously increased the IQ levels in both countries ;)

Kerala: No country for young men

One of the greatest of all hushed-up stories is this: forty-five years ago, when Neil Armstrong opened the Eagle's door and climbed down on to the surface of the moon, he was welcomed by a Keralite who also offered him a glass of hot tea.

Of course, that did not happen.  But, it is a tired-old joke from the old country that easily highlights the presence of Keralites (as in a person from Kerala, which is a state in southern India) seemingly in every corner of this planet--and on the moon too.

According to a recent survey, these expatriates number 1,625,653.  Where are they?

Among them, 1426740 are in the Gulf countries.

As in the countries by the Persian Gulf.  Other estimates place the number even higher.

These expatriates send quite a lot of money back to their homeland:

Kerala has set a new record in remittances this year by already reporting a whopping 36 per cent year-on-year spike in inflows as of June-end at Rs 75,883 crore.

The 75,883 crores of rupees are the equivalent of about 12 billion US dollars, which perhaps makes the expatriates the state's single largest export.

Kerala is, of course, only one example in a world where there are many of us who live in countries that are different from where we were born:

There are more than 230 million international migrants worldwide, which is more than the population of the world’s fifth most populous country, Brazil.

Out of those 230 million, 1.6 million are from Kerala.  The twelve billion dollars from these expat Keralites were about a sixth of what India earned through its diaspora:

India received $70 billion, more than the value of its exports of information-technology services.

More than the IT exports!

The Kerala, and India, stories might be big in the magnitude, but there are others with more impressive numbers:

In Tajikistan, as we have previously reported, migrant workers send home the equivalent of 47% of the country's GDP, and as many as half of the Tajik men in working-age are now believed to be living abroad. Similarly, an estimated 40% of Somalia’s population depend on remittances and need the cash to buy food and medicine.

All these lead to an interesting question: how much do these remittances help with local economic development?  

I noted in this post, from more than four years ago, that the international remittances--and remittances from Keralites who work in other states in India--have not transformed Kerala into an economic powerhouse.  Instead, Kerala has become a money-order economy.  Kerala ranks high, even in the world, on various social development indicators, yes, but could that have been achieved without these international and domestic remittances?

While Sen gave credit to the numerous state-initiated welfare programmes, Bhagwati and Panagariya said that the state's achievement on both the counts was mostly due to the globalisation of the state's economy in the 1990s and the huge inflow of remittance from its large non-resident community.

So, what are the effects of remittances on economic development?  The Economist quotes from an IMF study:

decades of private income transfers—remittances—have contributed little to economic growth in remittance-receiving economies...the most persuasive evidence in support of this finding is the lack of a single example of a remittances success story: a country in which remittances-led growth contributed significantly to its development...no nation can credibly claim that remittances have funded or catalyzed significant economic development.

And notes:

The cash may flow back but the human capital has left. If those who emigrated were not working anyway then the flow of remittances will have a positive effect, but if they were already working in the home economy then the impact will be more nuanced. Inward flows of remittances may boost national income, but GDP measures the output of a country. The effect of remittances on GDP growth therefore depends upon how the money is spent by the recipients.

The export of human capital means that a Keralite scientist might have even worked for NASA and helped send Armstrong to the moon, and could have sent quite a few dollars back to Kerala.  And the leftist politics in the state has certainly achieved remarkable social indicators, largely thanks to the money from elsewhere. But, after all these decades, does the state have a robust domestic economy, or are the youth from god's own country doomed to emigrate in order earn their livelihood, even if means setting up a chai stall on the moon?

Pakistan is a worse "money order economy" than Kerala

A while ago, I noted here about Kerala being a "money order economy"--if not for the remittances from abroad, especially from the Middle East, the state will be in a worse economic condition than it already is.

At least, Kerala's social indicators are healthy--from literacy to life expectancy to women's rights, etc.  Imagine a society without such high social indicators and worse economic conditions in which foreign remittances play even more a significant role.  Ok, you don't need to imagine it when we have the real case of Pakistan:

“This is our savior for keeping Pakistan out of the oxygen tent,” Farooq Sattar, former Minister for Overseas Pakistanis said in an interview in Karachi last month before his party quit the government alliance. “It has kept us from a complete economic collapse.”
Almost 10 million Pakistanis work overseas and the sum they’ve sent home has doubled in the four years through June, to a record $13 billion.

Remittances are about six percent of Pakistan's GDP.  How awful will conditions in Pakistan be if the billion-plus dollars don't keep coming in every month?  Pretty much bankruptcy!

 In 2008, Pakistan averted a balance of payments problem by securing an $11 billion IMF loan package, but the IMF suspended the programme in 2011 after economic and reform targets including widening the country's miniscule tax base were missed.
Some analysts have since warned about the prospect of a new balance of payments crisis.
Asked if Pakistan could avoid going back to the IMF, Liepach said: "I don't see that happening. It's a question of time. They need to do this before the end of this calendar year."
"It needs to be $6 billion to $9 billion."

Even the money that comes in is an underestimate because there are significant amounts that are transferred via off-the-books channels:

Pakistan was among the world’s top 10 recipients of recorded remittances in 2012, according to the World Bank. Sattar estimates billions of rupees from abroad are unreported, transferred with the help of illegal money operators known as hawala or hundi. Pakistan’s recorded remittances would double if the illegal channels were closed, he said.

Sometimes, looking at these issues from the outside, I do wonder why people simply cannot get their act together.  In Pakistan, a country where power shortages are so acute that they even had a floating power plant on loan, people would rather spend money to bomb the shit out of civilians because they happen to be of a different ethnicity or Islamic sect or whatever?  Maniacs would rather attempt to kill a young teenage girl than fixing up the mess the country is in?  It is a mad, mad, mad, mad world!

BTW, how are things in Kerala?  It is complicated. Kerala's labor force understands that almost always they can earn more if they moved out of state or the country.  Meanwhile, the state's below-replacement-level fertility rates mean that the state is rapidly aging, which then draws in labor from other states in India that have even worse economic conditions.  One heck of a migratory world in which we live.  

a study conducted by Gulati Institute of Finance and Taxation (GIFT) points out that these young migrant workers are breathing life into the state’s gasping farm sector, propelling its burgeoning construction industry, toiling at small industrial units, hotels and similar places. In short, they do all the menial works in the state. Without them the wheel of Kerala economy would not move.

The last count shows that about 25 lakh migrant labourers are working in Kerala having a population of 3.33 crore. And their numbers are growing at an incredible pace of 10 per cent annually.

In contrast, nearly 22.8 lakh Keralites are working abroad and nearly 10 lakh are in other states, says the study quoting a State Planning Board’s statistical reports for 2011. It shows that Kerala labour market needs at least 5 lakh workers more to maintain the balance between demand and supply.

This will further skew the native-migrant ratio in favour of the latter. Naturally, the state pays a heavy price for maintaining such a huge workforce from outside.  They drain out Rs 17,000 crore annually from the state by way of wages alone which incidentally is equivalent to the plan size of the state for the next fiscal. 

No state or country can't live off money orders alone.  At least, Kerala is a part of the Indian union.  Pakistan has to fend for itself.  Let us see how the elections mess up Pakistan even more!

Kerala, 2006