Intellectual Property Protection and the Brain Drain*

Alireza Naghavi†
December 2015

Abstract

Due to the poor availability of data on migration and intellectual property rights (IPRs) protection,
the relationship between IPRs and brain drain remains a blind spot in economic literature.
Intellectual property is a term that refers to the creation of novel ideas. As skills are a fundamental
component in producing ideas, brain drain can have a direct impact on the creation of intellectual
property. But can an adequate protection of IPRs reverse the phenomenon of brain drain? A lookat few existing works and the road ahead gives the impression that IPRs indeed govern thelocation and the magnitude of innovation activities. Better technologies, if not better institutions,can be transferred back to the migrants’ country of origin through trade, FDI, return migration, anddiaspora knowledge networks. If a better IPR environment in developing countries encourages theuse of knowledge acquired abroad, a brain gain can mitigate the loss from the initial outflow ofbrains. Naghavi and Strozzi (2015) take the first initiative to provide an empirical assessment of thetwo effects and investigate the role of IPRs in determining the magnitude of the two effects. They
argue that improving IPR institutions in sending countries can be a policy to exploit the fruits ofdiasporas.

*

This paper was originally written for the WIPO Experts Meeting on Intellectual Property, the International
Mobility of Knowledge Workers and the Brain Drain. I am grateful to Ernest Miguelez and Carsten Fink for
insightful guidance in revising the chapter. I am also grateful to my discussants Chiara Franzoni and Julio
Raffo and other participants of the workshop for valuable comments. The views expressed herein are solely
those of the author.
† University of Bologna, Department of Economics, Piazza Scaravilli 2, Bologna 40126, Italy. Phone: +39209-8873, Fax: +39-209-209-4080, Email : alireza.naghavi@unibo.it.

1. Introduction
The surge in the outflow of skilled emigrants from emerging and developing countries (EDC) has
created controversial debates about the threats and opportunities that the outward transfer of thehuman capital embedded in emigrants may pose to the sending countries. On the one hand, thetraditional literature on migration and brain drain presents mechanisms through which skilled
emigration could be detrimental to growth.1 On the other hand, a growing branch of contributions
argues that skilled emigration need not harm the EDC and may even increase their potential fordevelopment. Remittances have long been a major debate and are the most direct way throughwhich overseas emigrants can contribute to their home economies (Ozden and Schiff, 2005). Moresustainable methods than such direct static transfers have been discussed in recent works byintroducing the concept of brain gain. Brain gain can take several forms such as incentives forhuman capital formation due to migration prospects (Mountford, 1997; Stark et al. 2007; Beine etal., 2001, 2008), return migration (Mayr and Peri, 2009; Dustmann et al. 2011), or brain circulation,i.e. the recirculation of knowledge acquired by emigrants back to their home countries throughcross-border diaspora networks (Kerr, 2008; Agrawal et al., 2011).

There is little doubt today in the role of emigration in creating potential gains for the sending
country. On the latter, diaspora networks and return migration are influential economic forces that
help spread ideas by fostering trust through kinship ties, speeding the flow of information, andthrough the return of better trained and more experienced migrants back to their home countries.
Some interesting examples are Indian computer scientists in Bangalore constantly bouncing ideas
off their Indian counterparts in Silicon Valley or China’s technology industry being dominated byreturn (sea turtle) migration (The Economist, 2011). The issue came under spotlight, when on July25, 2012, in a keynote address at the second annual Global Diaspora Forum in Washington D.C.,
the former U.S. Secretary of State Hillary Rodham Clinton stated her confidence in the ability of
diaspora communities in solving existing problems in their home countries: “By tapping into theexperiences, the energy, the expertise of diaspora communities, we can reverse the so-called
brain drain that slows progress in so many countries around the world, and instead offer the
benefits of the brain gain.”

The objective of this analysis is to shed light on the role of skilled migration in brain
circulation, and to show in turn how home country institutions can contribute to turn brain drain into
gains in terms of innovation and development. The chapter touches upon questions regarding therelationship between brain drain and home country institutions and puts forward ways in which thephenomenon can be investigated. As technological progress and innovation is the focus of the
1 See for instance Berry and Soligo (1969), Bhagwati and Hamada (1974) and Miyagiwa (1991).

analysis, the institution of interest is patent protection, or more generally the intellectual property
rights (IPR) regime in the home country. The questions that this chapter aims to deal with can bedivided into three categories based on the direction of the causality.

The first set of questions involves how IPR protection affects the stay or go decision ofskilled workers, which comprise a country’s human capital. In other words, is there a relationshipbetween home country IPRs and the brain drain phenomenon? Does IPR protection affect thedecisions of scientists, engineers, information technology specialists, and related professional
about where to exercise their profession, with consequences for a country’s innovative capacity
and availability of knowledge? Also, to what extent does the relationship between the IPR regime
and brain drain differ across EDC? Do gaps in the protection of IPRs in such countries nurture thebrain drain of its most skilled workers? Looking at the question the other way around, is it also
possible for skilled migrants to change and improve institutions in their home country? Whenemigrants consist of a country’s most talented individuals, better institutional environment abroad
may induce them to directly and indirectly contribute to their home country institutions. In terms of
IPRs, do skilled diasporas and migrant returnees influence the effectiveness of the IP system inpromoting innovation in, and technology transfer to, their home countries? The third view is taking
institutions, here IPR protection in the home country, as given and examining how it can determine
the impact of skilled migration on home country innovation and development. This allows us tomake conclusions on whether the contribution of diasporas and the returnees to their home country
innovation and development is influenced by the IPR regime.

This work makes an initial attempt to collect and bring together insights from recent
literature to develop a number of hypotheses regarding the above questions and propose ways inwhich they can be put to test. To this end, I provide a brief review of the existing theoretical andempirical literature and present potential conclusions that can be deduced from them. First, I
discuss how IPRs can play a role in determining the direction of the flow, and eventually thelocation of, inventors and scientists. Next, I briefly discuss and explore the impact of emigration onhome country institutions at large due to the lack of evidence for such phenomenon specifically for
IPRs. Finally, while skilled migration can play a role in improving institutions, existing institutions
can change the impact of brain drain by providing means for the transfer and the effective use of
their skills in their home countries. Here I narrow down institutions to the protection of IPRs andprovide recent evidence on how this can have an impact on brain circulation through thefunctionality of diaspora knowledge networks. Using this explanation, I provide some preliminary
proposals on the role of IPRs in transforming brain drain into brain gain and making skilledmigration a win-win phenomenon through the facilitation of brain gain through brain circulation.

Given the absence of literature on the relationship between IPRs and brain drain, I conclude bysuggesting some initial steps for opening new avenues of research in this area.

2. Skilled Migration and Innovation at Home and Away
Skilled migration can be associated with innovation in the destination (Kerr, 2014) and the homecountry (Agrawal, 2014). Recent empirical studies have established a solid correlation between
inward migration and its benefits in terms of innovation. The goal of this section is to first discussthese works in order to understand the relationship between migration and innovation in thereceiving country. Once this is understood, I argue that looked the other way around, thephenomenon can mean forgone opportunities for the sending countries, i.e. brain drain. I thenshow how this is not always the case as a channel of knowledge flow can exist between brainsabroad and those that remain in the home country.

Bosetti et al. (2015) indeed argue that policies aimed at attracting skilled migrants to
Europe could give a boost to innovation in the European Union. They argue that the entry of skilledmigrants and their employment in occupations that put their skills into use results in the creation of
new knowledge measured by the number of patent applications. They model innovation as the
product of the number of researchers (which clearly increases with immigration) and average
researcher productivity. The second component itself depends on three factors: the stock ofknowledge (stand on the shoulders of giants), decreasing returns due to congestion externalities(stepping on the toes effect), and synergies brought about by the interaction of different cultures tobring together “diverse approaches to problem solving”. The authors find a positive effect of highly
skilled foreigners on innovation capacity of the destination country not only due to the presence ofmore skills in the country, but also because of complementarities between foreigners and natives.
While the causal effect of migration is clearly stated, the analysis stops here and does not deal with
the question whether the improved skills of the migrants can eventually also have any benefits forthe migrants’ home country.

Miguelez and Moreno (2015) take an important step further to study whether absorptive
capacity of regions that receive migrants plays a role in the effect of the latter on innovation. In
other words, they study knowledge flows and conditions under which they can be put into best use
by the receiving country. They also investigate the effectiveness of European policies in attracting
researchers from other parts of the world by studying preconditions under which they are more
likely to reach their aim of fostering EU competitiveness in innovation. They argue that absorptive
capacity is a necessary intermediate step to transform extra-regional knowledge into regionalinnovation. The unique feature of their approach is distinguishing between the geographicalmobility of inventors and co-inventions through cross-regional technological networks. While theyshow a positive causal effect of both types of knowledge transmission on innovation in thereceiving region, their results critically reveal that the more developed regions benefit more fromthe inward flow of inventors whereas the less advanced ones can have higher returns fromengaging in research networks. This reveals the important role of absorptive capacity indetermining the most effective way of knowledge flow as key to stimulating innovation.

Viewing these results the other way around, one would think that the departure of usefulskills that now disproportionally benefit the host country would have nothing but a negative impact
on the country of origin. After all, it is difficult to imagine how the flight of brains without areplacement can have any immediate benefits for the home economy. A series of contributions
presented in the introduction consider ways in which diasporas promote access to foreignproduced knowledge and foster innovation by encouraging trade and foreign investments in thehome country. In fact, expatriates do not even necessarily have to be entrepreneurs to invest or
make financial contributions to support their home economies. They can serve as bridges, on
which the (two-way) traffic of knowledge flows between regions. On the one hand, theirestablishment in foreign countries provides access to markets. On the other hand, they can offer
the acquired knowledge and expertise to their kin in their home countries. Nevertheless, Agrawal etal. (2011) found only very modest effects regarding the role of diasporas on knowledge diffusion
back for the case of India suggesting that there may be other factors at play.

On this note, an interesting side feature of Miguelez and Moreno (2015) deals with the roleof the outward migration rate on innovation. This rate consists of the ratio of the outflow of
inventors to the local number of inventors and indirectly measures knowledge flows from inventors
leaving a region back to their former colleagues in their firm or country. These estimates provide
insights that are directly related to this chapter because a positive coefficient goes in line with thebrain gain hypothesis, and a negative one instead would be consistent with reduced innovation
potential of the sending region due to the post-migration lack of inventors. Their findings show that
this relationship is positive and significant when the source is a high income region, and not sowhen it is a low income one. The authors interpret these results as outward migration of inventors
being an alternative source of knowledge flow through interaction with remaining workers in theirhome location. The results once again highlight the crucial role of absorptive capacity bysuggesting that this channel is only operational when the source region has reached a sufficientlevel of development to enable interaction opportunities between inventors now abroad and thosestill residing in their home countries.

3. The Protection of Intellectual Property Rights and the Flow of Knowledge
The question whether patent protection fosters or hinders technology transfer has been studied
extensively by economists. Hall (2013) takes another look at the topic by splitting the problem. She
poses two questions: whether stronger patent protection encourages (i) inward technology transfer
by attracting foreign investment, and (ii) technological development in a country. Vast empiricalevidence suggests a positive response to the first question suggesting that IPRs stimulatetechnology transfer by promoting trade (Maskus and Penubarti, 1995) and FDI (see Javorcik(2002), Branstetter et al. (2006), and Park and Lippoldt (2008) among others).2 However, IPR
protection could also hamper domestic innovation by blocking the adoption of new technologies
through imitation. This creates a non-monotonic relationship between IPRs and development as
deliberated in important contributions to the literature such as Braga et al. (2000), Maskus (2000),
and Chen and Puttitanun (2005).

The role of patent protection in promoting technology transfer can be confronted in several
dimensions at the micro or macro level. More recent empirical investigation at the firm-level has
made it possible to distinguish international transactions according to the complexity of products.
Naghavi et al. (2015) show that IPR protection nurtures technology transfer by encouraging
technology-sharing outsourcing of more complex goods. Naghavi and Strozzi (2015) investigate
another potential channel through which IPR protection may encourage domestic innovation andtechnological development. The protection of IPRs can be seen as another home country
institution linking skilled migration with the innovation behavior of inventors in a particular country.
They introduce the role of IPRs in determining the impact of skilled migration on innovation interms of patenting activities in the home country. They argue that IPRs may reverse the so-called
brain drain that may slow down technological progress in developing countries and insteadtransform the knowledge acquired by diasporas to benefits for the home economy (see Section
5.3).

The importance of the IPR institutional environment for fostering international innovative
activities by emerging economies, such as China and India, can also be addressed by examining
to what extent the institutional frameworks for IPR protection at home and away are relevant for the
involvement of EDC firms in global innovation networks. On this front, empirical findings in Comune
et al. (2011) show that stronger IPR enforcement at home increases international patenting
activities by the newly industrialize economies, whereas more stringent IPR protection abroad (inadvanced countries) reduces it. The convergence of global IPR standards therefore tends to2 Other modes of technology transfer not discussed here are licensing and joint ventures.

contribute to the internationalization of innovation activities that originate from the South. A recent
firm-level survey by project INGINEUS was specifically designed to gather information on
innovation by firms in the three sectors of agro-processing, automotive, and ICT.3 The survey
results reveal India to be the only emerging economy with a strong and positive probability of being
part of a global innovation network while China results amongst the least involved. At the sametime, 72% of the responding firms in the Chinese ICT sector emphasized the importance ofintellectual property ownership by requiring more stringent IPR regulations to appropriate
innovation activities. The relative value increases if we restrict the sample to firms that are involved
in global innovation networks. A smaller 54% of the Indian responding firms in the ICT sector wereconcerned about IPRs and at the same time resulted more open in conducting research activities
with foreign partners.

4. Adding Intellectual Property Rights to the Picture of Migration
The seminal work of Helpman (1993) is arguably the benchmark of a large literature on IPRs andinnovation. Its main result, contested by follow-up works of other scholars such as Lai (1998) andYang and Maskus (2001), is that the strengthening of the patent protection system reduces
technology transfer opportunities that are otherwise made possible through reverse engineering.
This together with the fact that the recognition of IPRs expands the monopoly power of innovators,
which are in this set up placed in the North, results in a worldwide slowdown of innovation andgrowth.
Mondal and Gupta (2008) is the first attempt to bring migration into a model of IPRs anddoes so by introducing international labor mobility in Helpman (1993). In their model, theinternational movement of workers is based on differences in per capita real spending between
regions. The steady state results suggest that strengthening IPR enforcement in the Southdecreases the share of products being imitated in the South, shifting labor from the South to theNorth. Incorporating migration prospects into Helpman’s model thereby makes the effect of IPRs
on innovation (which in this set of models only takes place in the North) positive. Putting thefindings in the context of this chapter, the model suggests that IPRs would reinforce the positive
impact of skilled migration on the host country discussed in Bosetti et al. (2015) and Miguelez andMoreno (2015). But does IPR protection in the South in any way help foster innovation anddevelopment, in particular through migration, in the South?

3 INGINEUS (Impact of Networks, Globalisation, and their Interaction with EU Strategies) is an international

research project funded by the European Commission that studies global innovation networks. It involves 14
research institutes and universities in seven European countries plus Brazil, China, India and South Africa.
For further information on INGINEUS project please see http://www.feemdeveloper.net/ingineus.

An important shortfall of this strand of literature is the lack of innovation prospects in theSouth. While this may have been a plausible assumption decades ago, it is no longer reasonable
to neglect this possibility in the increasingly diverging EDC economies that now include both lowincome countries where innovative capacity is still limited and more developed middle-income
countries that have already acquired certain pockets of innovation excellence. While Mondal andGupta (2008) simply introduce international labor mobility into Helpman’s product development
framework of IPRs, Naghavi and Strozzi (2014) build an occupational choice model to single out
the different effects of IPRs on the losses and benefits brought about by skilled migration. They
focus on developing countries and explore a concept referred to as "intellectual diaspora", which
deals with the connection of professionals abroad to scientific and technological activities at home
under different IPR environments. This, they claim, is a positive force caused by emigration thatcan counteract brain drain by generating a flow of ideas and inventions back to the migrants’countries of origin. They aim to study whether and how the effectiveness and the realization of thisflow can be determined by the strength of IPR institutions in the home country.

In Naghavi and Strozzi (2014), emigration results in a direct loss of the most talented
individuals in the extensive margin, but also creates a diaspora channel through which theknowledge acquired abroad can flow back to upgrade the skills of the remaining workers in thehome innovation sector in the intensive margin. IPR protection prevents imitative activities andrenders working in the innovation sector more profitable. It therefore attracts workers from othersectors into the innovation sector and discourages migration of skilled workers. The latter has two
opposing effects on the level of human capital in the home country. One the one hand, IPRs
increase the number of skilled workers in the home innovation sector. This in turn enhances theabsorptive capacity of the South, the importance of which was emphasized in Miguelez andMoreno (2015). On the other hand, IPRs also reduce the size of the diaspora, thereby limiting in
absolute terms the potential gains that can be acquired through migration.

The key effect of IPR protection that is revealed in the analysis is its role in increasing thesize of the innovation sector in the South, making it possible for potential gains coming from thediaspora to fall on a larger range of workers active in the innovation sector. The authors show
conditions under which this effect can create net gains from diasporas despite causing a reductionin the number emigrants. This occurs as long as the intensity of international knowledge flows
between the two countries is large and the IPR regime is strong. Looking at the problem from a
broader perspective, skilled migration results in a drain of brains that can be used in the innovation
sector, but provides developing economies with a chance to learn and send back superior
knowledge back to the home economy. A sound IPR environment in the South makes it more likely
for the second effect to dominate. The results are compatible with and complement alternative

hypotheses on the positive roles of migration for the sending country. Considering the Beine et al.,(2001) model of human capital development, one can think of IPR protection as a channel of brain
gain as it encourages education and entry into the innovation sector of the home country. Adding
IPRs in the Mayr and Peri (2009) context of return migration, the protection of ideas would induce
return migration of workers with enhanced skills back into their home innovation sector.

5. Revisiting the Questions on Intellectual Property Rights and Brain Drain
5.1 The Impact of IPR Protection on the Mobility of Scientists and Inventors

The only paper to our knowledge that studies how IPRs influence international migration of skilledworkers is the theoretical contribution of McAusland and Kuhn (2011). In their model, IPR
protection is endogenous. Governments use IPR policy as a tool to attract the creators ofintellectual property, a concept referred to as “bidding-for-brains”. They also detect an opposing
effect that reduces the incentives of IPR protection in a country when a significant share of its
intellectual workforce has already departed to another country. This occurs because the marginal
innovations produced by its brains living abroad are less relevant to the source country. The socalled “expatriate brains” effect is active when innovations are heterogeneous in their practicality
across different countries. The assumption is taken from Diwan and Rodrik (1991) that North andSouth may have differing technological needs. The paper interestingly also explores conditions
under which each of the two effects described above prevail. They show the negative effect ofbrain drain on IPRs to dominate for small or less developed economies as they have no hope ofcontesting the outflow of their skills through a strong intellectual property system. Conversely, thepositive effect through a bidding war takes significance in more advanced countries, where
innovative capacity has reached a sufficient level for IPR laws to have a meaningful effect on theoutflow of their brains.

The above analysis by McAusland and Kuhn (2011) suggests that IPR differential between
two countries has the potential to attract internationally mobile knowledge workers, but if a country
loses the bid for brains, it falls in an intellectual property trap and resorts to a low level of IPR
protection. As a result, incentives for IPR protection increase with innovative capacity and occur
when bidding for brains complements the protection of locally produced intellectual property,
creating more gains than intellectual free-riding. The hypothesis supports findings in the IPR
literature mentioned in the previous sections, that IPRs could only be beneficial once a country
passes a certain stage of development. Here, a country can only attract international scientists andinventors or prevent the outflow of brains through IPR protection after reaching a critical level ofinnovation capacity. Therefore, the impact of IPRs on the stay or go decision of skilled workers cantheoretically go both ways and remains an empirical question.

It is important to mention that IPRs are one of many factors that can influence the global
flow of skills. Market size, foreign direct investment, and returns to human capital are among otherfactors that determine decisions concerning skilled migration. In addition, IPRs being one of manyhome country institutions (some of which are presented in the next subsection) makes it difficult tosingle out its effect on the decisions of scientists, engineers, information technology specialists,and related professional about where to exercise their profession. Indeed what lacks with regards
to this particular question is a study that shows whether the protection of IPRs can truly influence
the international mobility of workers. We will discuss below how recently made available data in
Miguelez and Fink (2013) on inventor mobility can be a potential avenue to test the predictions
provided in this theoretical argument.
5.2 The Impact of Emigration on Home Country Institutions

We saw in Section 2 that immigrant communities play an important role in reinforcing therelationship between domestic and foreign actors and creating a mutually beneficial economic
exchange. The re-involvement of diasporas in the home country through investment andintegration in networks to transform it to a channel of gain is however not trivial. While the strengthand magnitude of the talent abroad is important, the capacity of home country institutions to absorb
and diffuse the acquired talent is also critical. Countries with strong institutions manage toefficiently utilize brain drain to their favor, whereas others fail to take advantage of the outflow of
their talent. Skills abroad can help formulate successful innovation projects, but only if homecountry organizations are capable of implementing them. In environments with weak organization,
activities by emigrants abroad are sometimes expected to be a substitute for backward institutions.
However, the healthy approach requires the simultaneous functioning of diaspora networks
together with strong home country organizations. On the one hand, learning from better norms andinstitutions is instrumental in strengthening home country institutions. On the other hand, capacity
building through favorable home country institutions is deemed as a necessary step for developing
countries to exploit potential benefits from diasporas.

Migration can work as a force that can affect institutions at home by providing an exit
option. Using the terminology in Hirschman (1970), exit refers to emigrating to a country with better
institutions. The alternative is voice, that is, protesting against political repression to improveexisting institutions. In an environment where those who exit can no longer express their voice,emigration reduces the probability of change and reform. Given that migrants are typicallypositively self-selected with respect to education, and that more educated individuals tend to havea higher degree of political participation, their leave is likely to hurt the quality of home country
institutions. However, emigrants abroad can engage in economic and political activities to reform
institutions in their home country. They may put pressure on international institutions and foreignstates to stimulate change in their home country or actively achieve economic and political power
abroad to reinforce internal change. In this case, emigration can increase the probability of anenhancement of home country institutions.4

Recent theoretical frameworks have been developed to explain this phenomenon. Mariani(2007) looks at how emigration may reduce corruption in the home country where agents canchoose between rent-seeking and productive activities. Those engaged in the productive sector
have the choice to move to a rent-free foreign country. The prospects of migration here reduce therelative return to rent-seeking, therefore decreasing the fraction of skilled workers who select intosuch activities. Peng (2009) extends this framework to one with heterogeneous agents and shows
the brain gain effects of migration in a rent-seeking environment can be due to a reallocation oftalent into the productive sector. He shows that regardless of the depletion of productive resources,
the possibility of migration could create incentives for more talented individuals to switch fromengaging in rent-seeking activities to productive activities.

In a recent study, Spilimbergo (2009) uses a seminal empirical strategy to observe
institutions from a general perspective and assess the impact of foreign-educated emigrants on
their home country. The study strikingly finds that emigrants educated in democratic countries
contribute to enhancing democracy in their home country by increasing the home country
population’s exposure to democratic values and norms. The follow up empirical conclusions have
however been at best mixed. Docquier et al. (2015) uses the same strategy to investigate theimpact of emigration on democracy and economic freedom in the home country. They find that
total emigration rate indeed has a positive effect on the quality of these institutions in the homecountry, while the results are ambiguous for high-skill migration. These findings give way tointeresting new hypotheses. One explanation for these results could be that the impact ofemigration on home country institutions is only present when the skilled remain in their country oforigin. Perhaps more interestingly, they conclude from the results that the channel at play here is
the incentive effect of migration prospects on human capital formation rather than the transfer ofnorms and institutions. Beine and Sekkat (2013) however obtain more favorable results for thelatter line of reasoning and once again confirm the feedback effect of values and norms from thediaspora to natives of the original country. Their focus is the quality of “market friendly” institutions
as measured by Kaufmann et al. (1998), namely voice and accountability, government

4 See Docquier et al. (2015) for anecdotal evidence in Mexico, Haiti, Cuba, Northern Ireland, and Croatia.

effectiveness, regulatory quality, and control of corruption. Using a similar empirical strategy as in
Spilimbergo (2009), they find that an increase in the quality of home country institutions depends
positively on the quality of institutions in the host country where emigrants reside. In the light ofthese findings and in contradiction to Docquier et al. (2015), they also find that the level of
education of emigrants plays an important role for this effect to take place.
While in the above analysis we analyzed the impact of skilled migration on several types of
institutions in the home country, we devote the remainder of this section to make some preliminary
analysis on how specific technology-related home country institutions can change the impact ofemigration on economic and innovative activities.

5.3 The Role of Intellectual Property Rights on Brain Circulation
The final question dealt with in this research is whether diasporas’ and returnees’ effects on homecountry innovation and development is influenced by their IPR regimes. Here, we are talking about
an indirect effect of an exogenous shift in the IPR regime in the sending country on the potential
impact skilled migrants abroad could have on innovative activities in their home country. The first
empirical paper that directly tackles this issue is Naghavi and Strozzi (2015), which shows thatdiaspora networks may generate positive knowledge flows, but only to the extent that there isenough absorptive capacity in the home country. IPR protection creates favorable conditions in theinnovation sector, in terms of either industrial development or foreign direct investment, employing
workers into skilled occupations that can benefit from diasporas. Their results discussed below
show that the strength of IPR protection is a moderating factor to enable gains from diaspora
networks.

Naghavi and Strozzi (2015) argues that a potential diaspora channel through whichknowledge acquired by emigrants abroad can flow back into the sending country enhances skills ofworkers in the innovation sector of developing and emerging economies. Recall from Section 4 thatthe protection of IPRs increases returns to skills, attracting workers into the innovation sector. This
increases the fraction of the population active in the innovation sector who can gain from skills
acquired abroad and sent back by emigrants. As a consequence, the protection of IPRs stimulatedomestic innovation by creating the right environment to absorb potential gains from internationalmigration. This reveals for the first time a relationship between emigration and IPR protection in
determining the evolvement of skills and innovation in the sending country. It points at thisopportunity provided by emigration for the sending country and suggests that the benefits can best
be realized under a sound IPR environment.

The empirical analysis is based on a sample of 34 emerging and developing countries (forwhich data on both migration and patents exist) with data ranging from 1995 to 2006. The measureof domestic innovation is the number of resident patents taken from WIPO, which represents thenumber of patents granted by the local national patent office in each country to its residents. Dataon emigration stocks are derived by summing up available bilateral immigration stocks by countryof origin into 27 OECD countries. The original annual bilateral migration has been collected by
Mariola Pytlikova from different statistical offices of the world and supplemented by publishedOECD statistics from “Trends in International Migration” publications and Eurostat data.5 The
measure of the stringency of IPR protection is the index compiled by Park (2008), which in thesample under consideration ranges from a minimum of 1.08 up to a maximum of 4.54. The resultsof the paper indeed find a direct negative and significant effect of emigration on innovation
activities performed in the home economy, suggesting that the depletion of skills can initially resultin a brain drain. However, a positive interaction effect between emigration and IPR protection
suggests that emigration can be supportive for innovation in the country of origin when IPRs are
sufficiently strong.

It is worth noting that in Eastern Europe, Latin America, and China, high levels of IPR
protection have only been reached since 2005 (see Park, 2008). As the results in Naghavi andStrozzi (2015) show that a relatively strong level of IPR enforcement is required to realize the gains
from diasporas, the potential role of IPRs in achieving brain gain through brain circulation is a newphenomenon. The findings shed light on the joint role of institutions and migration in promoting
innovation, by showing that political instruments such as IPR protection could perhaps be used tomake a win-win game out of emigration by fostering diaspora knowledge networks. More precisely,
the superior knowledge of diasporas can compensate for the missing innovation capacity in thesending country that can potentially be exploited with strong IPR enforcement. In other words,
emigration has a favorable effect on establishing a solid link between IPR protection andinnovation by providing domestic workers with the missing source of knowledge required for IPRs
to be effective in triggering inventions.

Naghavi and Strozzi (2015) also put the causality of their estimations into test using thefirst-difference technique and an instrumental variable approach. The paper uses two sets of
instruments to mitigate endogeneity concerns. The first set of instruments exploit information on
the determinants of migration used in the gravity literature to derive a measure of predictedemigration stocks. These include variables on geography, common culture, and past bilateralmigration stock in 1960. The paper then builds an alternative instrumental variable using

5

For a more comprehensive description of earlier versions of the same dataset, see Pedersen et al. (2008) and Palmer
and Pytliková (2015).

information on exogenous shocks to emigration that emerge from immigration policy changes. Thisis done by measuring the stringency of entry laws in destination countries relevant for each countryof origin to account for migration costs. The results validate the importance of IPRs in transforming
skills learned abroad into successful domestic innovation. Finally, the authors propose a check toestablish the principle channel of knowledge flow by putting the hypothesis of brain circulation
against the possibility that such benefits could arise from migration-induced trade or FDI. To dothis, they build a measure in the light of Spilimbergo (2009) to investigate the link between
domestic innovation in the sending country and innovation potential in the host country. The results
suggest that emigrants contribute to innovation in their countries of origin when their host country ismore technologically advanced in terms of their R&D or patents they possess. Trade and FDI do
not lead to similar results, in the sense that moving to countries with whom migrants’ home country
has more bilateral trade or FDI relations with the destination does not significantly affectinnovation.
5.4 The Way Forward

Due to the poor availability of data on migration flows and IPR protection, the literature has beenrather silent on the relationship between IPRs and brain drain. Only recently a small number oftheoretical and empirical works mentioned in this chapter have started to explore the issue. The
empirical investigation of Naghavi and Strozzi (2015) is a first step to connect IPRs with migration.
The first view obtained for IPR protection in the emerging and developing world regarding its
potential effects on migration is positive. One should also recall McAusland and Kuhn (2011), whoclaim IPRs to be an obstacle to the international ﬂow of brains. They make the theoreticalargument that if brains are emigrating, a country may as well loosen its IPR regime to free ride on
brains that have moved elsewhere. Note however that their study does not consider any channels
through which the skills acquired abroad can be transferred back into the country of origin, which is
explicitly what Naghavi and Strozzi (2015) aim to study.

Due to the scarcity of data on IPRs, most of the existing empirical studies implicitly treat
intellectual property as a unidimensional policy variable, missing out on many important aspects of
IP policy. First, while the overwhelming majority of countries in the world now have an IP law
including patent rights for inventions, there are certainly differences in the way these rights areadministered and enforced. For example, many less developed economies may have weakerinstitutions for administering and enforcing IPRs. However, there are also less developed
economies with well-functioning institutions, where the patent system still plays a marginal role in
the innovation system either due to their limited innovation capacity or their preference for using
the USPTO or the EPO for patenting their valuable inventions. It is therefore important toinvestigate in future research which dimension of IP policy matters most for brain drain/gain
outcomes – is it the details of the intellectual property laws, the way IPRs are administered, how
they can be enforced, or whether the intellectual property system is compatible with theinternational exploitation of IPRs through, for example, the patent cooperation treaty (PCT)
system?

Indeed, the concept of how and why different dimensions of IPRs should be related to brain
drain is of great importance in today’s growing knowledge-based economies and deservesattention in the economic literature. Brain is the producer of intellectual property, therefore thedirect link between the two could be the translation of brain drain into intellectual property drain.
Evidence and stylized facts provided in this chapter have stressed the importance of international
collaboration when it comes to innovation activities and engagement in the global markets toacquire knowledge. This can therefore transform skilled migration into intellectual property gains
for the individual and with the right institutions in place also for the country of origin. It is importantwhether the protection of IPRs results in a net push or pull of intellectual property in a country.
Empirical work to investigate this phenomenon is still at its infancy and is yet to be developed.

For a start, the empirical strategies used in the related works mentioned in sections 5.2 and
5.3, namely Spilimbergo (2009), Beine and Sekkat (2013), Docquier et al. (2015), and Naghavi andStrozzi (2015) can be used to study the two-way causality between migration and home country
institutions. Scientists and high-skilled professionals can decide where to exercise their profession,
driving consequences for a country’s innovation capacity and the availability of knowledge.
International differences in the level of IPR protection may influence this decision and have an
impact on the flow of migration. The other way around, outward migration of skilled workers can
induce changes in the effectiveness of the IPR regime in achieving innovation and technology
transfer. Below we list some initial strategies to conduct a few preliminary investigations of thislinkage in the light of available data:(i)

One can study whether the protection of IPRs causes a direct flight of skills andscientists. Here it would be interesting to see how emigration is impacted with IPR
protection in the home and the prospective destination country, using the newly
available data on the international mobility of inventors presented in Miguelez and Fink
(2013) to test the theoretical findings of McAusland and Kuhn (2011). This is possible
as the new data set exploits the fact that PCT patent applications in a majority of cases
record both the residence and the nationality of an inventor. This can be used as adirect tool to point out inventions by skilled migrants in their destination country. Looking
at the IPR protection level in the origin and the destination of an emigrant inventor,

valuable information could be provided on whether gaps in the protection of IPRs
nurture the brain drain of scientists and inventors. A more specific test of McAusland
and Kuhn (2011) would include the interaction of IPR strength and the development
rate (using GDP figures) to show whether and to what extent IPRs work to attract brains
depending on a country’s stage of development.

(ii)

Following the strategy of Naghavi and Strozzi (2015), it is interesting to extend theargument to see whether skilled migration flows increase international scientificcollaboration between developed and developing countries and explore how IPR
protection in the home country relates to this. This can be performed by directly
measuring co-patenting as in Miguelez (2014) to study technology collaboration
between local and foreign inventors in producing cross-country PCT patentapplications, as an alternative to using the number of resident patents in the homecountry (domestic innovation).

(iii)

Applying Beine and Sekkat (2013) to IPRs as the institution of interest, one can study
the impact of the IPR regime in the destination country of emigrants on IPR protectionin their home country. This is parallel to the concept in Spilimbergo (2009) that foreigntrained individuals promote democracy in their home countries if they study indemocratic countries. In order to capture the heterogeneity among different
destinations, an emigration index deﬁned as the weighted average of emigration ﬂows
can be constructed the weight of which would depend on the IPR regime in each hostcountry.

(iv)

A variant of the methodology in (iii) could be to combine it with (ii) and assessinternational collaboration as a function of emigration weighed by the strength of the
IPR regime in the host country, the IPR regime in the home country, and the interaction
between the two. This allows the study of the effect of international differences in theprotection of IPRs on bilateral international collaboration between countries.

6. Conclusion
Researchers have begun to rename the brain drain phenomenon as brain circulation inrecognition of the fact that many skilled workers who settle in their host country remain connectedwith their country of origin. Others return to their home countries with new skills and abilities.
Saxenian (1999) was one of the first studies to identify the potential for mitigating brain drain
through brain circulation. This realization has led to a global movement toward knowledgenetworks: formal and informal networks that comprise expatriates and others who directly andindirectly contribute in the development of their home country. Migrant communities abroad engage
in a broad set of activities such as investments, knowledge transfer, or simply intellectual
connection with their homelands.

Talent is the root of innovation activities and the creation of knowledge, and its location andinstitutional surroundings can determine the geographical boundaries of its effectiveness. To
capitalize on talent, newly knowledge-based economies are designing new organizational forms toenhance the efficacy of talents in their development. Diaspora networks of expatriate talent are one
such new organizational form of the emerging global, knowledge-based economies. Institutions
such as the protection of intellectual property can have a significance in the realization of suchintentions by its impact on the location and mobility of scientists, and the location and mobility of
the knowledge embodied in them, which need not coincide with their physical entity. By attracting
knowledge back to the home economy and creating ways in which the knowledge can be put into
better use, IPR protection may indeed play a role in the transformation of brain drain into brain gainby materializing the potential gains from diasporas. Connecting to global innovation networks,
another decisive phenomenon that determines the ability of catch-up economies to play a part in
the world economy can thus be their IPR regime its distance to the world IPR frontier.

Research in the joint field of IPR protection and skilled migration is however still at its very
early stages and needs to establish theoretical and empirical regularities in order to confirm andelucidate the above explanations. Some interesting ways forward can at this point be drawn fromthe current review. New data from Miguelez and Fink (2013) can help measure the impact of thedifferential in IPR regimes across countries in determining the decision of scientists where topractice their profession. However, it is important to remember that IPR policy is multidimensional
and that it is one of many factors that can influence the international mobility of talent. A more indepth study of international scientific collaboration and its relationship with IPRs can make itpossible to see whether these institutions can truly mobilize diaspora back towards the country oforigin or if the acquired skills are simply put into use abroad. It is also possible to see whether
emigration (skilled or total) causes a direct drain of voice or whether they can help improve homeinstitutions by transferring the IPR norms of more advanced economies. Or do poor institutions
reflected in bilateral differences in IPR protection levels simply result in the flight of skills andscientists? Moving to innovation and patenting activities, it would be interesting to expand the workof Naghavi and Strozzi (2015) and see if home country institutions impact the sign and themagnitude of the effect of brain drain on patents and innovation in the home country. If IPRs truly
manage to transform brain drain into brain gain, more research must be devoted to see how such
improvements are feasible and can be directed towards the facilitation of brain circulation.

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