Migration, Technology Diffusion andInstitutional Development at the Origin†
Olena Ivus and Alireza Naghavi

Abstract

This chapter considers several mechanisms through which international migration
can influence institutional development at the country of origin. Migration canpromote institutional reform, and sound political and economic institutions arenecessary to realize the potential growth and development gains from migration. We
also highlight the neglected but crucial role migrants play in the worldwide diffusionof innovative ideas and technologies. The analysis reveals a positive relationshipbetween inventor migration and international scientific collaboration, which can arise
from the circulation of knowledge within diaspora knowledge networks.

†

Olena Ivus: Queen's School of Business, Queen's University, Goodes Hall, 143 Union Street,

Kingston, ON K7L 3N6, Canada. Email: oivus@business.queensu.ca. Alireza Naghavi: University of
Bologna, Department of Economics, Piazza Scaravilli 2, Bologna 40126, Italy. Email:alireza.naghavi@unibo.it.

11. Introduction
International migration has reached an unprecedented pace and scale in recent
years. As of 2010, 216 million people resided outside their country of origin
compared to 156 million in 1992 (World Bank, 2011). Studies have shown that skilledworkers are among the most likely classes to emigrate (Docquier & Marfouk, 2006;
Docquier et al., 2007). Between 1990 and 2000, the share of high-skilled workers in
the overall migrant population increased from 18.9% to 25.8%. Foreign-born workers
with post-secondary education represented 34.6% of the OECD immigration
population in 2000, when the share of world labour force with post-secondary
education was just 11%. The destination patterns of these high-skilled migrants arequite pronounced. The countries enjoying the highest skilled immigration are the USA(hosting 50% of total OECD high skilled immigrants worldwide), Canada (13.4%)
and Australia (7.5%). In some small countries (e.g., Guyana, Jamaica and Haiti),
immigrants make up 80% of the skilled labour force.
As a result of these trends, international migration of innovators has taken on
greater priority for many countries. At one end we find developed countries, with
their promise of economic stability, opportunity and entrenched democratic
institutions. These countries compete to attract talent from abroad, and accordingly,
many have shifted their immigration policy to a merit-based focus, including Canada,
Australia and the United Kingdom. The United States is not far behind, with the U.S.
Senate passing a bill providing for talent-based immigration system in June of 2013.i
At the other end are the developing countries from which skilled migrants depart.
For these countries, emigration is perceived as an alarming loss of human capital or2

“brain drain,” and a trend to be stifled through restrictive policies. However, as will
be discussed below, obstructing mobility to prevent brain drain has provenineffective. Such restrictions prevent a country from reaping gains from migration
which could arise, for example, when high-skilled expatriates transfer knowledge
attained abroad to their home countries. Bhagwati (2003) argues that source countries’
policies should focus on organizing diaspora networks, and that this strategy is much
more likely to succeed today than a retention policy. In fact, most attempts to control
and manage skilled emigration by prohibition and taxation have failed (Lowell, 2001).
The literature on skilled migration has focused largely on the effects of migration
on host and source countries. The pre-1990s literature was primarily concerned withthe brain drain phenomenon and identified various mechanisms through which skilled
emigration could be detrimental to country welfare and growth (e.g., Berry & Soligo,
1969; Bhagwati & Hamada, 1974; Miyagiwa, 1991). More recent literature
considered the possible benefits to source countries from the migration of skilledworkers. This strand of literature argues that skilled emigration need not harm
emerging and developing economies and may even contribute to their development.
Remittance transfers are the most direct way which migrants can contribute to theirhome country’s economy (Ozden and Schiff, 2005). This literature has also examined
the factors that turned source countries’ brain drain into “brain gain” (e.g., Stark et al.,
1997; Vidal, 1998; Kapur et al., 2005; Docquier & Rapoport, 2012; Gibson &McKenzie, 2012). These studies show that brain gain can take several forms. For
instance, the mere prospect of migration provides an incentive for human capitalformation among potential immigrants (Mountford, 1997; Fan and Stark, 2007; Beineet al., 2001, 2008). Ex-post, source countries benefit from any return turn of migrants3who have acquired skills abroad (Mayr and Peri, 2009; Dustmann et al. 2011), andeven the skilled migrants who do not return communicate foreign knowledge to theirhome countries through migrants’ diaspora networks and close-knit, ethnic scientificcommunities (Saxenian 1999, 2002; Saxenian, et al., 2002; Kerr, 2008; Agrawal et al.,2011; Devan and Tewari, 2001).
Diaspora networks can increase source countries’ access to foreign-produced
knowledge without skilled emigrants returning home.

Instead, skilled emigrants

speed the flow of knowledge between source and host countries. The influence of
diaspora networks and return migration is particularly strong in China and India.
Saxenian (1999) is one of the first studies to highlight the role of diaspora and ethnic
professional networks in mutual aid, trust building and knowledge circulation. The
author analyzed 11 443 high-tech start-up companies in Silicon Valley during the
1980-1998 period and found that 25 percent of these companies had ethnic Chineseand Indian immigrants as senior executives. In addition, 40% of the companies in
Taiwan’s science-based industrial park in Hschinchu were started and managed bymigrant returnees. Saxenian’s study highlights the role of international, ethnic
professional networks in the repatriation of skilled. The typical role of immigrantassociations in mutual aid and trust building was extended internationally to facilitate
access to capital, marketing skills, and markets for Taiwanese start-ups. Saxenian(2002) and Saxenian, et al. (2002) provide evidence on Silicon Valley’s ethnic
networks and reports that 82% of Chinese and Indian immigrant scientists andengineers “share information about technology with colleagues in their native
countries (and 28% do so on a regular basis).”4

Devan and Tewari (2001) also encourage developing countries to mobilize theirdiaspora brain resources, leverage expatriate talent and encourage emigrants to play
an active role in the economic development of their home countries. This
recommendation is supported by the apparent success of China and India in taking
advantage of their brain banks abroad.
Against that background, we note that today's knowledge economy is fast-paced,fiercely competitive and worldwide in reach. To succeed in this environment where
so many fail, participating firms are driven to seek out the brightest minds from talentpools across the world. The location of talent defines the geography of innovation,and so determines a country’s prospect for development and growth. What role doeconomic planners and policymakers have in this recruitment race? What cangovernments do to give homegrown firms a competitive edge internationally, while
also serving the general interests of the domestic economy?
As discussed above, the government response is nearly always to pass
immigration reforms. This response serves as a frontal assault on the problem, anddefinitely creates the appearance of pro-active, effective governance. However, there
are other, more subtle ways to derive maximum benefits from skilled migration andcontribute to the development of knowledge-based economy. Taking a lead role in thegrowth and strengthening of diaspora networks of expatriate talent is one suchopportunity.

Institutional reforms might also have a significant impact on themobility of skilled workers and the diffusion of knowledge. Indeed, with skilledmigration and innovative capacity taking on greater importance for many
governments, the relationship between the two and their effect on growth has received
a lot of attention from researchers and policy-makers. Given that innovators are the5producers of intellectual property, home country institutions that protect the latter
have a central role to play in knowledge circulation and the maximization of brain
gains from innovator migration. Home country institutions are also likely to impact
these countries’ success in connecting to global innovation networks, which will inturn determine their ability to catch-up with other innovative economies.
A phenomenon little explored in economic literature is the effect of internationalmigration itself on home country institutions. The first question that arises is whether
or not international migration results in the depletion of active voice that promotes
better institutions in the home country. Recent studies surveyed in the next section
argue that institutional norms such as democratic values may in fact be transferred tothe home country. The mobility of institutional norms through migration can in turn
be linked with the mobility of knowledge and technology. Under what circumstances
can migration play the same role as trade introduced in Eaton and Kortum (2002) inthe worldwide diffusion of technology?

A primary attempt to disclose thismechanism is Naghavi and Strozzi (2011), which shows that gains from international
emigration can only be realized if intellectual property rights institutions are sufficientto put the newly acquired knowledge to use in the form of patents in the source
countries. Nevertheless, the interplay between international migration, home country
institutions and technology diffusion remains a vast unexplored field. We hope that
this chapter can serve to introduce the importance of this relationship and encourage
further theoretical and empirical research to explain the facts regarding the trends andthe correlations that connect its elements.

6

2. Emigration as an Engine for Institutional Development
As discussed above, the literature has traditionally focused on the economic
consequences of migration for sending and receiving countries. The political impactof migration in terms of institutional development has received less attention in theliterature. The quality of home country institutions can also be endogenously
determined as a function of migrants shaping development. Migration can affectinstitutions at home in several ways. First, emigration creates “exit” and “voice”
alternatives, as described in Hirschman (1970). Briefly, in this context, exit isemigration to a country with relatively better institutions, while voice is remaining at
home and protesting against unproductive activities and weak institutions. Exit
obviously curtails the individual exiter’s lobbying at home, and the direct effect ofexit on institutions is similar to that of brain drain, in that it reduces the existing voicein the country. This effect is especially strong among skilled migrants, as typically
additional education is associated with greater propensity for political activity. The
alternative is stay at home, organize opposition to the status quo, and seek
improvements in home institutions.
When a country’s emigrants are from the more educated segment of the society,emigration may generate a second indirect effect on institutional development at
home. Skilled workers living abroad may acquire political influence in their hostcountry, and gain experience with the various modern political and democratic
institutions offered by developed host countries. Some of these migrants ultimately
revisit their lobbying efforts there with fresh vigor, and with clear conceptions of thealternative institutions and systems for which to lobby.

7

So what is the net effect of migration on institutional development? Spilimbergo(2009) uses a novel empirical methodology to study the relationship between thequality of institutions in the country where emigrants study and the migrants’ countryof origin. The variables of interest are (i) the number of students abroad as a share of
total population in the sending country (lagged five years to capture the effect offoreign education), (ii) the average level of democracy in the host country (to capture
the type of political institution foreign students are exposed to) and (iii) the interaction
between the two (to see whether the marginal effect of foreign education depends on
the level of democracy in the host country). The paper demonstrates that foreigntrained individuals who acquire their education in democratic countries promote
democratic values in their home countries. The author refers to this phenomenon as
the transfer of norms. Two micro studies, Batista and Vicente (2011) and Mahmoud
et al. (2011), support this claim for Cape Verde and Moldova respectively.
Docquier et al., (2011) introduce support for a competing hypothesis introducedin Beine et al., (2001, 2007); namely that it is incentives for education caused bymigration prospects rather than transfer of norms that is responsible for institutional
development in the home country. They reach this conclusion by showing that both
total emigration rate and human capital have a positive and significant effect on
democracy and economic freedom in the home country. Their results suggest that the
impact of skilled migration is ambiguous for institutional development in the homecountry because skilled migration in principle increases total emigration while
reducing average human capital at the same time. The explanation provided for thisoccurring is that the impact of emigration on home country institutions is only present
when the skilled remain in their country of origin.

8

Follow up studies have used similar strategies to determine whether the conceptof transfer of norms concept applies to other types of institutions. In the spirit of
Spilimbergo (2009), Beine and Sekkat (2013) conduct a direct test of the exit versus
voice argument by focusing on the quality of “market friendly” institutions, asmeasured by Kaufmann et al. (1998). More specifically, they construct four variablesof total migration rate, skilled migration rate, the weighted average of the levels ofgovernance quality across countries of destination based on total and skilledmigration. Institutions studied in this paper are (i) voice and accountability, (ii)control of corruption, (iii) government effectiveness and (iv) regulatory quality. Threeinteresting findings can be deduced from the exercise carried out in this paper. First,
for both types of migration the coefficients are significant and negative for voice andaccountability. This suggests that the “exit” channel discussed above is present, where
migration reducing active voice in the country. Second, the coefficient of the transfer
of norms (the interaction) related to voice and accountability is positive andsignificant for both types of migration. This confirms the feedback effect of values
and norms from diasporas to the natives in the original country. Third, the magnitudeof the above-mentioned effects are larger under skilled relative to total migration.
This completes the validation of the hypothesis that the level of education ofemigrants matters—that is, foreign education training is what contributes more to an
enhancement of domestic institutions.
2.1 Rent-Seeking
Mariani (2007) develops a theoretical framework to show how skilled migration
improves institutions in the home country by limiting rent-seeking and shifting the
economy towards more entrepreneurial activities. The underlying assumption in this9

model is that only productive skills are mobile, therefore migration reduces therelative expected returns from rent-seeking, generating a reallocation of the remaining
skilled workers from wasteful to productive activities.
We present a simplified version of the model here to present the point regarding
the mechanism at play. In the model, a nation is composed of homogeneous workers
who can either carry out productive activities using their human capital to earn h or
choose to engage in rent-seeking. Rent-seeking here is modeled as a meeting between
the two types of agents, after which the rent-seeker extorts a fraction q of the worker’s
income, earning a total of qh. The proportion of rent-seekers and productive workers
is identified by p and 1-p, respectively. For the sake of simplicity we assume that the
number of rent-seekers exceeds the number of entrepreneurs (that is, p > 1/2). This
leaves an income of (1-q)h to workers after extortion takes place, whereas the rentseekers earn qh(1-p)/p where (1-p)/p represents the probability that a rent-seeker
meets and is matched with a productive worker.
Introducing migration gives workers in the productive sector a chance to migrate
to a country with better institutions, where wages (and intellectual property) are better
protected. This creates a lower loss of their income that occurs due to rent-seeking
f<q. This gives the probability to migrate m or to stay at home 1-m. Expected
earnings of production workers and rent seekers respectively turn to:vS ( p, m) = [(1 − m)(1 − q )] + m(1 − f )]h ,vR ( p, m) =(1 − m )(1 − p )
qh .
p

10

It is easy to see that a positive probability of migration, m, raises expected
income of the skilled due to higher prospective net wages and decreases that of rentseekers because they have a lower probability of meeting a “prey”. Finally,
endogenizing the proportion of rent-seekers vis-à-vis productive workers, p, theequilibrium value can be found by equating the income of the two segments of thesociety. This yields p e ( m ) =(1 − m ) q, which is decreasing in m. Lower expected
1 − mfrents therefore discourage predatory activities in the country of origin, or in otherwords result in an endogenous improvement in home country institutions.
2.2 Expropriation
Docquier and Rapoport (2003) tackle the issue of home country institutions bydividing the society into a minority and a majority (ethnic) group and looking at theextent of expropriation by the group in power. The factor in play here is adiscriminatory tax levied on the educated segment of the minority and redistributed
among the majority. Migration provides a form of protection for the minority groupby decreasing discriminatory policies such as biased redistribution against the latter.
In their framework, the government maximizes the welfare of a privileged majority.
The population in turn decides whether to invest in education to improve theirproductivity in the first period and whether to emigrate in the second.
Agents are given a minimal level of human capital normalized to 1, and areheterogeneous in their learning ability, z. All agents earn 1 in the first period. In thesecond period those who forgo education continue to earn 1, while the ones that
undergo education earn 1+z. Income in each scenario can be presented as:

11

v00 = 1 +

1
,
1+ r

v10 = 1 − e +1 + z (1 − t ),1+ r

v11 = 1 − e +1+ z − m,1+ r

where e is the cost of education, m is the cost of migration, t is the tax rate and r
is the interest rate (measuring discount rate on future earnings). The first binary
subscript indicates education and the second depicts migration. The setting creates acontinuum of agents assorted according to their capabilities with two thresholds z1 andz2, which represent the indifferent agent with respect to education and migration,
respectively. Agents in the minority with ability z<z1 do not invest in education, thosewith z1<z<z2 invest in education but stay home and the highest skilled segment (z>z2)
also migrate.
An increase in the tax rate, t, increases the size of the population in the first andthe third zone, whereas those in the middle who are subject to taxes graduallydisappear. This captures the role of discrimination in deterring investment ineducation while inducing the more educated to emigrate. The gains are more tax
revenue from the educated who remain at home on the intensive margin, and thelosses are the shrinking size of that group in the extensive margin. The government,
which optimally sets the tax rate on the educated minority (or the extent of
discrimination) must assure that enough agents choose to go through education, while
limiting emigration. As migration costs decrease, optimal discriminatory taxes must
be reduced to compensate and encourage the educated minority to stay in their home12

country. Once again, migration is shown to improve the quality of institutions by
reducing discriminatory behavior by a non-democratic government in power.ii

3. International Migration and Technology Diffusion
Knowledge circulation and technology diffusion is critical for countries’ growthand performance in the modern-day knowledge economy (Romer, 1990; Aghion &Howitt, 1992). This is especially true for those developing countries where domestic
innovative capacity is lacking and diffusion of foreign technologies is an importantsource of innovation. To access foreign technologies, countries largely rely on trade ingoods and services, foreign direct investment and technology licensing—the mostsignificant channels of technology transfer. Growing evidence also suggests thatcross-border movement of inventors, researchers, scientists, engineers, entrepreneurs
and the like facilitate knowledge exchange and diffusion of innovative ideas. With
increased mobility of high-skilled workers, international migration could become
another major channel through which innovative ideas and technologies diffuse
worldwide, and carry with it important implications for the world distribution ofprosperity and welfare.
The link between international migration, knowledge circulation and technology
adoption has yet to be firmly established. Most of our insight comes from two
separate strands of the literature. The first concerns the innovation impact of highskilled migration. Although limited, this literature points to high-skilled migration
providing an important contribution to innovation in major host countries, and thepotential for increased innovative capacities in sending countries. These effects are
possible when migration facilitates the exchange of knowledge and ideas across13

countries through return migration, diaspora networks, ethnic communities, etc. The
second strand of the literature concerns knowledge creation, international technology
diffusion, and productivity growth. For the purposes of this discussion, the most
relevant contributions are those of Eaton & Kortum (1999), Lucas (2009) and Cominet al. (2012), which underscore the role of individuals’ knowledge, human interactions
and geographical distance in the technology adoption process. In what follows, wehighlight the key insights provided by each strand of the literature and then briefly
outline potential connections between the two.
The literature on the innovation impact of high-skilled migration is still in its
infancy. What we know to this point suggests that high-skilled immigrants are making
major host countries more innovative. A commonly cited fact is that high-skilled
immigrants account for a large share of U.S. innovation activity. As examples,
immigrants started 25% of U.S. public venture-backed companies between 1990 and
2005, most of which are concentrated in sectors with the highest innovation rates,
such as high-technology manufacturing, information and life sciences (Anderson andPlatzer, 2006). Immigrants also represented 26% of U.S.-based Nobel Prize winners
between 1990 and 2000 (Peri, 2007). By comparison, foreign-born individuals
comprised 12% of U.S. population in 2000 (Hunt and Gauthier-Louise, 2008). Amongcollege graduates in the U.S., immigrants patent about twice as much as their native
counterparts (Hunt and Gauthier-Louise, 2008). Immigrant non-U.S. citizens
accounted for 24% of international patent applications filed from the U.S. in 2006
(Wadhwa et al., 2007). The trends in Canada and Europe are similar. At least 35% of
all Canada Research Chairs—arguably the most efficacious research talent—are
foreign born, when the share of the country’s foreign-born was 20% in 2000 (Downie,

14

2010). A positive relationship between high-skilled immigrant and patenting activity
has also been found across Canadian provinces (Partridge and Furtan, 2008) andregions in Europe (Ozgen, 2013).
There is also evidence to suggest that high-skilled migration could contribute toinnovative capacities of sending countries, although the evidence is more limited.
These gains can be realized as migrants who have acquired skills and innovative ideas
abroad return to their home countries (Mayr & Peri, 2009; Dustmann et al. 2011).
Sending countries can also gain from high-skilled migration as emigrants circulateknowledge acquired abroad back to their home countries through cross-borderdiaspora networks and close-knit, ethnic scientific communities. In Agrawal et al.
(2011), the emigration of inventors weakens local knowledge networks but creates
diaspora knowledge networks which improve remaining innovators’ access to foreignknowledge. The authors find that the diaspora effect on knowledge flows—also
referred to as the “brain bank” effect—is particularly strong in India and is mostvaluable for the highest value inventions. Kerr (2008) explores whether ethnicscientific and entrepreneurial communities in the U.S. facilitates technology transfer
to foreign countries of the same ethnicity. The findings suggest that the ethnicity
channel plays an important role in foreign technology transfer and is particularly
strong in high-tech industries and Chinese communities. Saxenian (2005) also showthat highly skilled diasporas from China and India contributed significantly to thetransfer of knowledge and technology from host countries to the Chinese and Indian
economies.
The underlying premise of the above literature is that cross-country exchange ofknowledge is facilitated by the movement of people across international borders.

15Related is the literature on knowledge creation and international technology diffusion
which emphasizes the role of individuals’ decisions and human interactions in theprocess. Insightful contributions in this area are provided by Eaton & Kortum (1999),
Lucas (2009) and Comin et al. (2012), which we briefly review below.
In Eaton & Kortum (1999), countries simultaneously contribute to and benefit
from each other’s inventions and this interdependence in innovative activity acrosscountries contributes to productivity growth. A central measure of the innovationgrowth linkage is the rate at which technologies generated abroad are eventuallyadopted in a given country. Countries that are quicker to adopt foreign technologies
have higher productivity ranking in the steady state.
Eaton & Kortum (1999) assume that the diffusion of new technologies acrosscountries is governed by inventors’ patenting decisions. An inventor will seek patent
protection in a given country if the likelihood of the invention being used in thatcountry is high enough that the expected value of patent protection exceeds the costsof obtaining the patent in that country. Data on international patent applications areused to quantify the direction and magnitude of international technology diffusion.
These data contain information on residence of inventor and country of application,
allowing researchers to trace the source and uses of innovative ideas (that is, observe
where an idea originates and where it is eventually used) to measure the extent towhich countries utilize ideas conceived in other countries.
Eaton & Kortum (1999) fit the model to data on productivity levels, research
employment and patenting from the five countries (the United States, Japan,
Germany, the United Kingdom and France) in the late 1980s. The authors find that16

technology diffusion is extensive: relative to the adoption of domestically generated
ideas, countries generally adopt from ½ to ¾ of ideas generated abroad. The adoptionof foreign ideas contributes considerably to each country’s growth. In fact, the UnitedStates is the only country in which domestic innovation is a primary driver of growth.
In Lucas (2009), it is individuals who acquire and generate knowledge and in sodoing shape the knowledge of an economy. As individuals interact, each person
contributes to and benefits from the ideas and knowledge of people around him.
Human interactions thus facilitate knowledge exchange and so further contribute to
the intellectual activity of an economy and the overall growth of knowledge.
To relate an individual’s knowledge to the knowledge of an economy, Lucas(2009) builds upon the Kortum (1997) and Eaton & Kortum (1999) model in which
the distribution of knowledge over individuals (that is, the technology frontier)describes the state of knowledge of an economy. Since an individual’s contribution to
the economy’s knowledge varies over the life span of the individual (e.g., knowledge
is lost when the individual dies), Lucas (2009) incorporates a cohort structure withoverlapping generations into the model. The focus of the paper is on modelling atechnology of knowledge creation and learning, with individual behavior taken as
given. One could further develop the framework to incorporate a wide range ofindividual allocative decisions (e.g., occupational choice and migration) which are
expected to influence knowledge circulation and technology diffusion withincountries or across international borders.
Comin et al. (2012) study how technology diffuses across countries and over timeand propose the theory of human interactions to account for the observed pattern of17

technology diffusion. The empirical analysis utilizes Comin and Hobijn (2004, 2010)
Cross-Country Historical Adoption of Technology (CHAT) data on the adoption of 20
major technologies in 161 countries over the last 140 years. The focus is on theexistence of cross-country interactions in technology adoption and the role ofgeographical distance in the transmission of technological knowledge. The key
variable is the spatial distance from other countries’ technology (SDT) measure. It isconstructed as the interaction between distance and technology adoption:

∀

where
technology

is the distance between countries
in country

and

and

is the adoption ofat time . In other words, the SDT measure is the scalar

product of the vector of distances to the other countries and the vector of adoption
levels in these other countries. Using this measure, the authors find negative spatial
effect, suggesting that adoption of technology is slower in countries which are further
away from the adoption leaders. Not surprisingly however, the effect of geography
diminishes over time as technology diffuses.
The theory proffered in Comin et al. (2012) builds upon the insight of Eaton &Kortum (1999) and Lucas (2009). The underlying premise is that technology isdiffused across countries through human interactions. Individuals meet randomly andas they interact, share ideas and learn from each other about newly adopted
technologies. If only one of the two agents who meet has adopted the new technology,
the other agent also adopts that technology. The speed and spatial scope of technology
adoption depends on (i) the frequency of interactions and (ii) the probability that two
agents from different locations meet. Interactions are more frequent for newer18

technologies and so these technologies diffuse faster. The probability of interactions
falls with distance. Individuals in close proximity interact the most, which is why alarge portion of technological knowledge is localized.
Perhaps surprisingly, the two strands of literature discussed above have been
pursued in isolation of one another. Bringing together these areas may prove useful instrengthening the link between international migration of high-skilled workers andcross-country knowledge circulation and technology diffusion. One could, forexample, build on the insights provided by a theory of human interactions to model
migration and incorporate it into Eaton & Kortum’s (1999) theory of innovation andtechnology diffusion. Such theory would assume that adopting a technology requires
new knowledge, which comes from interactions between adopters and non-adopters.
Migration reduces social distance and helps overcome “man-made” barriers to crossborder interactions. In so doing, it increases the potential for interaction between
agents from different countries and the international sharing of ideas. Migrantinnovators arrive in host countries with a plethora of knowhow and skills. Thisknowledge is supplemented with ideas and expertise acquired while abroad.
Diffusion of technology could occur both in the host country where the innovator
lives and works, and in the source country through diaspora networks and othermeans. In these ways, migration is expected to stimulate the diffusion of technology
from the location of invention to the location of adoption.
Empirical migration studies have provided important, but limited insights. One
obvious shortcoming is that the studies focused on only a few countries over shorttime periods. To a large extent, this deficiency is attributable to the lack of data on
migration flows. The World Intellectual Property Organization (WIPO) has

19

acknowledged and addressed this concern directly, by committing to “develop[ing] an
informed research agenda on intellectual property, migration, and associatedknowledge flows, providing the basis for future studies on this topic” (WIPO, 2011).
As part of this commitment, WIPO collected and recently released data on migrant
inventors (Miguelez & Fink, 2013). The dataset has four principal advantages over its
predecessors. First, it focuses on inventors—a specific class of high-skilled workers
who create knowledge, as distinct from other tertiary educated workers. Second, it isderived from the residence and nationality information disclosed by inventors
themselves in their patent applications, which is more precise than, for example,
inferring migration history from the cultural origin of inventors’ names. Third, thisdataset is based on patent applications filed under the Patent Cooperation Treaty(PCT). This is important because PCT operates worldwide in nearly all countries, andimplements a uniform application procedure and process—allowing for easier crosscountry comparisons. Finally, the data cover many countries and years (241countries/territories for every year from 1978 to 2012).
To gain a better understanding of the link between inventor migration andinternational knowledge circulation, we relate inventor emigration rates from
Miguelez & Fink’s (2013) data to the degree of international collaboration on PCTapplications. The rate of inventor emigration is defined for each country of origin as
follows:
abroad and/(+), whereis the number of country 's inventors residing

is the number of inventors residing in ( 's nationals and immigrants).

This rate is calculated over the 2001-2011 period. The degree of international
collaboration is calculated for the year 2011 as follows:/ , whereis the numberof 's inventors in foreign-owned PCT applications (submitted by foreign firms for20

patenting in ) andis the number of 's inventors in all PCT applications. The data

for this measure are taken from Section A.6.2. of the WIPO World Intellectual
Property Indicators (WIPO, 2012).

The degree of international collaboration, 2011
.2
.4
.6
.8
1

Figure 1 plots the data for 70 countries with highest number of inventors in all
PCT applications.

PH

UA
HR

TH

MX
RU

SK

PL

IN CO

IE

HU
BE

CR
AR
BY

BA JO
VELB PKNGBDIRRS TN VNEG BG MA ROID
DZ
CY
LK
GR

IS
GB CZ CA
CL TR
BR
MY
ATNZ
LU
PT

SA
IT
ZA
CU
IL
SG
CH NL
ES
AU
DKFR
EE
SE
NO
SI
DE

CN

FI
US

KR

0

JP

0

.2

.4
.6
.8
The rate of inventor emigration, 2001-2011

1

Figure 1: Inventor collaboration and emigration by countries of inventors
It is apparent that the two variables are positively related: cross-bordercollaboration on PCT applications is high in countries with high inventor emigration
rates. In India, for example, the inventor emigration rate was 51% over the period of
2001-2011, with as many as 44 864 inventors residing abroad and 43 784 inventors
residing in India over this period. Around 66 percent of Indian inventors (6 631 out of
the total of 10 019) were included in foreign PCT applications in 2011. In China, bycontrast, the rate of inventor emigration and the share of inventors in foreign-owned
PCT applications were 24% and 26% respectively. A positive association between

21

inventor emigration rates and the degree of international collaboration could be theresult of inventor migration promoting knowledge circulation and technology
diffusion through diaspora knowledge networks. While further analysis is needed toreach definitive conclusions, the exhibited pattern nonetheless suggests that inventor
migration facilitates international diffusion of innovative ideas and technologies.

4. Can Better Home Country Institutions Transform Brain Drain to Brain
Gain?
Naghavi and Strozzi (2011) turn the question regarding the role of migration on
the development of home country institutions around and ask whether the latter can
influence the impact of migration on the home economy. As the focus of this paper ison innovation, the institution they consider is the legal infrastructure to protect
intellectual property rights (IPRs). They show that although emigration out of adeveloping country may cause brain drain, it also generates brain gain throughdiaspora knowledge networks, the extent of which depends on the IPR institutions in
the country of origin. In a sense they investigate the role of IPRs in the country oforigin on promoting technology diffusion through migration.
Similar to the framework of Docquier and Rapoport (2003) discussed in Section
2.2, they built a model of agents with heterogeneous abilities, who decide to attain an
education and migrate to a country with better wage opportunities. They however
divide the economy into two sectors: production and innovation. The least skilled up
to a threshold level z1 work in the production sector, whereas workers with abilities
above that threshold choose to put their skills to work in the innovation sector. Thosewith the highest skills above a higher threshold z2, can also afford to pay migration22

costs and emigrate. Obviously the skills that leave the economy cause an immediate
brain drain on the extensive margin. However, Naghavi and Strozzi (2011) introduce
a potential channel through which superior knowledge acquired abroad can flow backto the country of origin. This increases the skills of the remaining workers in theinnovation sector in the intensive margin.
The protection of IPRs is presented as an increase in the probability that aninventor can exercise monopoly power in the market for his invention, and in turn, thevalue of skills. A higher probability of obtaining a patent also increases returns fromskills, attracting workers into the innovation sector. On the lower side of skills moreworkers invest in education generating a shift of workers from production to
innovation activities. On the higher end better enhanced returns to skills at homemakes potential migrants think twice brains in the home country. New skills learned
abroad and sent back by emigrants can be diffused over a larger innovation sector (themiddle zone between z1 and z2), increasing potential gains from migration. A net brain
gain is the outcome of migration if the magnitude of this skill upgrading is large
enough to outweigh the direct negative effects of an outflow of skills on innovation.
The results show that diaspora networks may generate positive knowledge flows,
but only to the extent that there is enough absorptive capacity in the home country.
IPR protection creates the conditions for an innovation sector, in terms of either
industrial development or foreign direct investment, employing workers into skilledoccupations that can benefit from diasporas. They show that the strength of IPR
institutions is a moderating factor to enable gains from diaspora networks. The results
obtained by stronger IPRs are in line with an alternative explanation for brain gain,
namely human capital incentives (Bein et al., 2001) and return migration (Mayer and23Peri, 2009). IPRs function as an intermediary channel to exploit gains from migration
by encouraging investment in education and thereby human capital formation in thesending country. Better IPR protection also encourages workers who have obtained
better skills to return to the innovation sector of their home country. Notwithstanding
the channel in play, one can conclude that skilled migration generates technology
fusion when institutional development in the home country is sufficiently evolved toallow the absorption of knowledge flows through human capital development, return
migration, or intellectual diaspora networks.
The impact of emigration to OECD in the presence of IPRs on patenting activities
by residents in the country of origin is empirically tested in Naghavi and Strozzi(2011) on a sample of 35 emerging and developing countries with data ranging from1995 to 2006. The results of the paper find a direct negative and significant effect ofemigration on innovation activities performed in the home economy, suggesting thatthe depletion of skill can initially result in brain drain. However a positive interaction
between emigration and IPR protection confirm a positive correlation between
emigration and innovation when IPRs are sufficiently strong.
As an example, two countries with the weakest IPR regimes were Bangladesh
and Iran (with an index lower than 2 out of 5), while in the same year Hungary andBulgaria are the two countries with the highest degree of IPR protection (with anindex higher than 4.5). In the same year, China and India had an index of 4.08 and3.76 respectively. The findings show that the emerging and developing countries that
had an IPR protection index greater than 3.6 can exploit the beneficial effects of
migration on innovation and experience technological progress. With data taken from2006, this implies that an increase in the number of emigrants by 10% in China leads24to an increase in the number of patents there by 1.3%. The same increase in Iran leads
to a decrease in the number of patents there by 4.6% (Naghavi and Strozzi, 2012).
This reinforces the role of intellectual property rights institutions in the home country
in determining whether international migration can result in brain drain or brain gain.
Interestingly, the authors also conduct an analysis in spirit of Spilimbergo (2009)
to see whether the intensity of knowledge transferred back to the countries of origin
depends on the level of development in the host countries. To do so, emigration isweighed according to GDP per capital in the host countries to account for differencesin potential technology diffusion between country pairs according to where emigrants
land. More specifically, the emigration index lies between 0 if all emigrants are incountries with the lowest potential for learning better technologies, and 1 if all
emigrants go to the most advanced countries. The above results are confirmed:
emigrating to countries with better potential for technology diffusion is more likely toinstigate innovation in the home country when the quality of IPR institutions is
adequate. The conclusion confirms the opportunity provided by emigration for
emerging and developing country and suggests that the greatest benefits can best be
realized under a strong and well-developed regulatory environment.

5. Conclusion
This chapter has aimed to reveal the interplay between international migration,home country institutions and technology diffusion. We first looked at the theoreticallink between migration and home country institutions. In short, migration can effecthome country institutions in many ways and it is not trivial that brain drain can resultin a deterioration of home country institutions.

25

We saw that skilled migrants can influence the actions of the remaining
population in the home country and ultimately the authorities. The emigration ofpolitically active agents to jurisdictions with better protections naturally curtails
lobbying efforts at home. However, better norms and institutions can be adopted andtransferred to strengthen institutions in the home country. Emigrants can for instanceengage in economic and political activities to reform institutions in their homecountry. The phenomenon can be thought of as a political economy process in which
migrants' lobbying efforts and potential migration push domestic reforms of
institutions.
We also argued that for diaspora networks to improve source countries’ access toforeign-produced knowledge, it is not required that skilled emigrants return to theirhome countries or make direct financial contributions to their home economies.
Instead skilled emigrants can speed up the flow of knowledge between source andhost countries. First by living and working abroad, skilled emigrants increase accessto foreign country markets and allow source countries to tap into foreign knowledge,
which can then flow back to source countries as emigrants share their expertise withresidents of their home countries. Migrant inventors, researchers, scientists, engineers,
entrepreneurs and the like are thus not permanently lost to source countries; they havea potential to provide an invaluable contribution to knowledge and development of
their home economics.
International migration also has an important role in technology diffusion, which
has to a great degree been ignored in economic literature. Turning our attention awayfrom trade and foreign direct investment and towards migration, we considered how
the mobility of inventors can indeed result in the diffusion of new technologies.

26

Although further research remains to be conducted in this area, stylized facts clearlysignal a correlation between the physical diffusion of human capital and that ofintellectual property.
Finally, we refer to the work of Naghavi and Strozzi (2011) which bring all thethree above-mentioned elements together to see how (exogenously) stronger homecountry institutions enable a country to absorb potential gains from internationalmigration. Although South-North migration results in skill upgrading of migrants, forthis knowledge to be exploited in a sending country, institutions need to be
sufficiently strong. Although this work looks solely at the intellectual property rights
institutions, it would be worth looking at the effect of other political and economic
institutions in force. Nonetheless, this chapter once again confirms the link between
our three variables of interest and begs for further research to explore the links andpotential causalities between them. We also expect this survey will provide theinformation and motivation needed to empower policymakers, economic planners,
intergovernmental organizations and non-governmental organizations in theirrespective efforts to manage the impacts of high skill worker migration for the benefitof all.

27

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i

Senate bill S.744, entitled “Border Security, Economic Opportunity, and Immigration Modernization

Act of 2013”
ii

Testaverde (2013) takes a different approach, in which democracy is defined as a redistribution

system. A rich ruling elite tries to maintain power by giving concessions to the poor, who can revolt or
migrate. Migration increases wages making the level of redistribution required by the poor lower.
Democracy therefore becomes relatively less costly for the elite. In addition, less numerous poor
increases payoff of a successful revolution making them less willing to accept concessions. Migration
therefore fosters a democratic redistribution system.

34