International Human Capital Flows and Development

Year Awarded: 2003

This Initiative has concluded its research.

Cross-border financial capital flows have transformed the global economic and political landscape over the last fifty years. As financial capital mobility has increased, the ability to attract foreign capital and manage its impact on domestic structures has emerged as a central concern for policymakers in developed and developing countries. The premise of this research proposal is that cross-border flows of human capital are likely to play an equally influential role in shaping the political and economic landscape over the next fifty years, driven by structural factors, both demographic and technological, in both developing and developed countries.

The evidence of the scope and scale of these cross-border human capital flows and their impact on source countries is beginning to surface. Although the flight of human capital appears particularly pronounced in countries suffering from civil conflict and economic stagnation where human capital is scarce, the phenomenon is much more encompassing. It stretches beyond the archetypal images of Mexican farm labor or Indian software professionals coming to the US to North African workers in Southern Europe, Chinese researchers in Japan and East Europeans in Germany.

Demographic shifts and a continued imbalance between the demand and supply of skilled workers in developed countries are likely to loosen the constraints on global migratory flows set by the current restrictive practices of developed countries. These demographic changes and consequent fiscal stresses will affect immigration policy in developed countries in three critical ways:

  • Developed countries will allow a greater magnitude of immigration to ease the fiscal pressures of aging societies. At a minimum, such flows will mitigate increases in tax rates or benefit reductions required over the next half-century.
  • Developed countries will become increasingly selective about the immigrants they seek to attract and admit, with a focus on attracting skilled workers likely to have a positive fiscal impact. Given the current excess supplies of would-be skilled immigrants for many rich countries, more skilled workers can be imported by simply relaxing existing restrictions, though we expect there to be increasing competition for the workers with the most advantageous fiscal impacts.
  • Developed countries will increasingly encourage temporary immigration, especially where the temporary migrants do not establish any benefit entitlements. Given the high demand for skilled workers and their desire to have the option of migrating permanently, it is likely that countries will begin matching permitted duration with skill levels thereby creating classes of permanent—skilled and temporary—unskilled migrants.

In contrast to the voluminous literature on the impacts of immigration on developed countries, the consequences of the potentially large cross-border flows of human capital on source countries have received scant attention from economists and political scientists (though the pioneering work of Bhagwati and others on the welfare implications of human capital flows from poor to rich countries beginning in the mid-1970s is a notable exception).

The project team's research aimed at filling this void. It had three main elements:

  • The political economy of developed country immigration policy
  • The multiple economic and political effects of skilled emigration
  • Policy options-tax and non-tax based-for developing countries and the international community

Principal Investigators

Mihir A. Desai

Faculty Associate. Mizuho Financial Group Professor of Finance, Finance, and Entrepreneurial Management Units, Harvard Business School; Senior Associate Dean for Planning and University Affairs, Harvard Business School; Professor of Law, Harvard Law School.

Dani Rodrik (then of the Harvard Kennedy School and now of Princeton); Devesh Kapur (then of the Department of Government and now of the University of Pennsylvania); Mark R. Rosenzweig (then of the John F. Kennedy School of Government and now of Yale University)

See also: Initiatives