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.. (I)
).
: The responsiveness of emigration on the change in innovation.
: Current net level of total emigration of high-skilled labour.
: Minimum innovation gap that remains because of factors other than emigration.
This equation is for a particular point of time.
4.3 Emigration: Factors influencing it!
Emigration abroad occurs for many reasons that can be broadly categorized intro: family-sponsored and
employment-based. The scope of this paper is limited to the analysis of employment-based emigration to
understand the impact of emigration to the quality of labour available for exploitation for the Indian service
sector.
The paper charts out two trends in emigration to prove that India experiences an increasing outflow of
highlyskilled labour force. Firstly, the total numbers of employment-based Indian immigrants jumped up to
4.3% in 2000.
Combining the trends corroborates the claim that the majority of Indian men and women emigrating appear
to be attracted by growing opportunities in white-collar occupations which require a refined mix of higher
educational qualifications, and professional and skilled/technical occupation credentials (Findlay). The same
claim is verified by the fact that India has consistently been in the top10 source countries for emigration to
USA, Canada and UK.
1
The economic impact of such intensive migration is multi-layered. The endogenous growth theory, also
states that economic growth rate is jeopardized in case of high-skilled emigration. High skilled labour is
critical to productivity and hence such emigration undermines the productive capacity of the economy.
Additionally, loss of human capital reduces the potential output level of a country. Therefore, emigration
can be viewed as a significant hurdle in India's stride to magnify its potential output hence growth in the long
run.
It is noteworthy that attached with emigration is an array of benefits as well. These include feedback effects
in the monetary form of return, remittances, Diasporas and technology transfer as well as in the human
resource form of return migrants who enhance productivity by bringing back their skills and work
experience from abroad. Hence, India is in need of a "beneficial brain drain" such that emigration is
adequate to factor in capital and labour gains while low enough to prevent depletion of the stock of skilled
workers faster than it can be regenerated. (Wei Li)
1
USA, Canada and UK were selected on the rationale for being the highest GDP per capita countries in the West for the past 10
years.
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A significant reason for India being a top source country for high skilled emigration is the recent rise in
proficiency in English of the Indian cohorts. The establishment of USA: The 1990 Immigration Act and
Canada: The 2002 IRPA emphasized the importance of language in its selection criteria giving English-
language speakers easier access to the countries, thereby sharply reducing the supply of acceptable
applicants from China which had been the top source country since 1997 (Shi, 2003), and resulting in an
increasing number of skilled immigrants from India. Attracted by overall good economic outcomes in terms
of retaining jobs and earning prevalent income that Indian emigrants experience abroad, English became a
popular agenda for the Indian educated class.
Hereafter, we conduct a country analysis of both developed and developing nations to know about the
importance of the relationship between emigration and innovation as well as to gather theoretical evidence to
the above proposed equation.
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COUNTRY ANALYSIS
5.1Development of High Skilled Workers: The Curious Case of North America
5.1.1 The Case
India currently sees a great dearth of a pool of high skilled workers and the same has been attributed to the
lack of focus on developing high skilled workers.
We have seen by far how important it is for a nation to develop highly productive labour which will actually
attract more Foreign Direct Investment in terms of establishing better high-end services other than
Information Technology.
A case of North America sufficiently depicts the necessity of asserting high skilled workers as indicated by
the OECD report, Developing High Skilled Workers: Review of Canada (2004). Canada has a relatively
good deal of human capital as compared to other OECD nations but has enormous gaps in terms of labour
productivity, innovation (research & development) and comparative returns to the high skilled labourers
resulting into a severe competition that it faces from its southern brother. Even though Canada has an
expansive stock of high skilled workers, workers in US receive better salaries and confront better job
prospects.
The OECD report (OECD report on development of high skilled workers: Review of Canada , 2008)
suggests measures for developing Canadian high-skilled worker pool by providing better economic
environment more conducive to innovation and research. Factors like the structure of business industries,
lower rates of graduation in technical courses, lower level of worker training, etc. The Indian case is very
similar to the Canadian case in terms of the structural lacking that the country faces. Table 1 (presented
below) from the report recommend policies for high skilled people in Canada.
Canada: Progress and Recommendation
Source: OECD report on development of high skilled workers: Review of Canada (2008)
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5.1.2 United States: Striking the right balance
It is interesting to note how US has used innovation to grow its high skilled services. United States see an
increase in the patents by immigrants by 9-18 % over the period of 1950-2000 while at the same time there
is just one percent point increase in the number of college graduates (Hunt & Gauthier-Loiselle, 2009).
There are a few interesting results found in some of the previous studies, and they are listed as follows:
1. Compared to a foreign -born population of 12% in 2000, 26% of U.S. -based Nobel Prize recipients
from 1990-2000 were immigrants (Peri 2007), as were 25% of founders of public venture backed
U.S. companies in 1990-2005 (Anderson and Platzer 2006), and founders of 25% of new high-tech
companies with more than one million dollars in sales in 2006 (Wadhwa et al. 2007).
2. Immigrants are over-represented among members of the National Academy of Sciences and the
National Academy of Engineering, among authors of highly cited science and engineering journal
articles, and among founders of bio-tech companies undergoing IPOs (Stephan and Levin 2001).
3. Kerr (2007) brings forth the surge in the share of U.S. patents awarded to U.S.-based inventors with
Chinese and Indian names to 12% of the total by 2004, and Wadhwa et al. (2007) and that non-U.S.
citizens account for 24% of international patent applications from the United States which shows the
disparity in the research inclinations of immigrants more than that of natives.
The above facts indicate the important role immigrants in US play to foster their growth through research
and development which is represented the statistics on patents.
Even though people are from various countries their research and development actually contribute to the
growth that is witnessed by the US economy.
US has been efficient enough to provide the institutional framework needed to develop a good research base
in the country, thus attracting the research-oriented academicians from across the globe to research and
therefore, add to the US Economy.
The facts also show the high fraction of Indian researchers in US who have got their patent rights for their
original work in myriad fields. The lesson to be learnt for Indians is to harness the potential of their natives
and not let them have spill over effects on other economies.
These research capabilities of the Indians will help develop high-end services thus making the contribution
of employment more useful in terms of including more educated people as a part of service sector employed
pool. The dream of Innovation decade (2010-2020) doesnt seem far-fetched, but we need more institutions
and opportunities to research and innovate so as to strikingly reverse the trend of the rates of emigration to
developed nations.
5.2 South African Analogy: A developing nations story
South Africa being a developing country faces the problem of brain drain similar to India and will be
appropriate to analyse the link. South Africans are concerned about the high emigration of skilled labour
while labour market projections claim that there will be growing demand of skilled labour in the coming
times to substantiate the growth of an economy and consequently service sector. (Haroon Bhorat)
Why South Africa?
South Africa has recently seen the demise of apartheid and is in a transformation period where efforts are
being made to tackle the problem of emigration to develop the indigenous human capital. Hence, South
Africa is an important case to study.
There are several reasons, similar to that of India, which are cited as to why there is high emigration in South
Africa. Some of these are listed below:
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Push Factors
Factors such as low standard for living, less advanced institutions of higher studies and lower opportunities
for high skilled workers act as a push factor that induce emigration in a country.
Pull Factors
The rampant growth in the service sector of developed nations acts as an important pull factor for
emigrations from developing nations. The demand hike of high skilled labourers seen in the growth of
services like Information & Technology, Communications, Business & Financial services have attracted
high-skilled people globally.
Table: Growth in Service Sector of Developed Nations
S. No. Country Share in 1980 (%) Share in 1994 (%)
1. United States 58.1 67.5
2. United Kingdom 63.6 70
The other pull factor that works for the developing countries is the demographic dynamics. Developed
countries have moved in the phase III of the demographic transition and there is a larger bracket of older
population while in developing countries there is high proportion of young workforce.
Other Pull factors include existence of large number of the same community members in the host country.
Better judicial and legal system in developed nations also helps in attracting more immigrants.
5.2.1 Trends in South Africa
Sectoral changes
Alike India, South Africa has also seen the shift from primary sectors to tertiary sector with growth of high-
skilled populace. Agriculture has seen a decline of 3% and mining has reduced by 4% over the period 1970-
1995. While services have seen a compensating increases of 6% over the same period. The move towards
achieving a greater labour productivity with capital intensive techniques is a reason for such a shift.
Employment Structure
This calls for a valuation of the changes in the employment patterns in South Africa. The following figures
demonstrate the changes in employment over the same 25 year period (Haroon Bhorat).
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Clearly, the high-skilled workers have gained substantialy over the period as compared to low skilled people.
This clearly shows a preference of high skilled labourers over low skilled labourers due to a sectoral shift
and also due to high capital-labour ratio.
After discussing the relationship between emigration and research & development in detail, we try and probe
into the association of innovation and the growth of the service sector by using an econometric model and
conducting an extensive cross-sectional analysis.
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INNOVATION GAP: An Unsolved Case
The major challenging facing a developed nation is to convert the pool of human capital to translate into
effective R&D and innovation. While the problem with developing nations like India is to sustain growth
experienced by various sectors by curbing the innovation gap between developing and developed nations
as well as to tap the human capabilities within the country and also from abroad to increase the GDP.
(Mariani, 2007)
Taking service sector into consideration, India requires a great deal of innovation and R&D in various
services such as Education, Health, etc. The push given to the Information Technology should be available
to all other services as well so we have not just high growth but diversified high growth in the service sector.
6.1 A Model
A simple equation shows the case of Innovation Gap that a country might face.
... (II)
The above equation takes into consideration a direct effect of innovation gap on the contribution of GDP by
service sector.
: Coefficient measuring the correlation between innovation gap and service sector growth.