The Tragic Reality of Brain Drain on Poor Countries | Economics Explained

this is Taiwan a heavily disputed territory off the coast of mainland China that is home to 23.5 million people and some of the most important industrial centers in the world don't worry this is not yet another video about Chinese and Taiwanese hostilities and how it could be the Catalyst for a major war between Global superpowers it's instead about a trend that while not as attention grabbing could be just as devastating for most of the world Taiwan today is the second richest major economy in Asia following only just behind Japan which it should overtake in the

next few years if current trends continue it is clearly an advanced economy after making the transition from a poor agrarian makeshift settlement in a military dictatorship that only officially ended 35 years ago taiwan's story of transitioning from an agrarian economy to a low-cost manufacturing center and then finally on to becoming an advanced Center of world leading Industries is not unique other countries in the region followed very similar paths in the last Decades of the 20th century South Korea Singapore Japan even certain regions within mainland China all became what economists would broadly call Advanced or developed

economies Taiwan is interesting because it really was one of the last major economies to make that jump and today more and more of the fast-growing economies from around the world are struggling to make the transition from a developing economy to an advanced economy there are even examples like Brazil that arguably became the first country ever to go from being an advanced economy back to being a developing economy outside of unique situations like this one the general trend is that less and less countries are making that final step to become fully fledged advanced economies and are

getting stuck dealing with endless problems in the developing stage already this year we have made videos about Sri Lanka Pakistan and even China that are all lurching from one economic problem to the next now there are endless reasons as to why rich countries are rich and poor countries are poor but one of the biggest ones is an economic process known as brain train which has the potential to solidify countries positions in the global economy and make it almost impossible for anybody else to join the ranks of the 30 or so existing advanced economies so what

is brain train and why is it getting worse how is brain drain making rich countries richer and poor countries poorer and finally is there any way for the developing countries to stop this from happening this episode of Economics explained was brought to you by course careers as we're about to find out in this video universities have become very expensive but they are also not necessary for a lot of high paying careers that favor practical and people skills over a formal education course careers helps to bridge the gap by providing affordable online courses and Technical industries

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the full course go to coursecareers.com economics explained and use the discount code ee50 the link encoder on screen now and in the video description below there is no specific definition of what an advanced economy is or is not economists roughly agree that it's a country with a GDP per capita at least above twenty thousand dollars per year at the absolute minimum a country with Advanced highly technical Industries a well-functioning and fairly regulated market system and a good score on the human development index a combination of all of these factors is kind of important and that's

why institutions like the IMF would classify Spain as an advanced economy but not Brunei even though Brunei has had a GDP per capita 50 higher than that of Spain's in fact the IMF is really the only agency that specifically defines individual countries by labeling them as advanced emerging or low income and you really have to go digging to find those classifications to most economists an advanced economy is one of those things where you know it when you see it and I think it's important to mention that as we try to make sense of what is

stopping other countries from reaching this ill-defined status brain drain is the process of Highly Educated and productive participants in an economy leaving their home country to achieve better opportunities in another country this move can be motivated by better paying opportunities a better lifestyle or be driven by people leaving their home countries to avoid violence corruption or persecution overwhelmingly the most productive members of economies around the world are moving from developing economies and moving to advanced economies I am massively generalizing here but advanced economies are normally nicer places to live with lower rates of violence and

higher paying jobs an engineer in India earns an average salary of eight hundred thousand rupees which is about 10 000 US dollars in India that's actually a decent salary but if they can take those expertise and get qualified as an engineer in the United States they would potentially be earning 10 times that amount or more an advanced country like the USA while it has its problems is also far less crowded and polluted than most areas of India so if it is an opportunity that is presented to them a lot of people from India and a

lot of other countries will take it this hurts the countries they're coming from because they lose their most productive workers the workers that will pay the most tax produce them most value and have the highest chances of driving Innovation to make the country wealthier they also lose these workers right as they stop being an economic burden which I know is a very mean thing to say about children and students but that's what they are they take more money from the economy than they contribute until they go on to be workers after they work in careers

they once again become an economic burden in their old age this is normally an investment worth making either for the government or the children's families because in undeveloped economies children will go on to look after their parents while they can no longer work and in developing in advanced economies the children will go on to produce way more value in their working lives and the government lost to educating them and potentially losing out on their parents taxable incomes while they looked after them but the distinction of who pays and who benefits from children is different in

these different economies for undeveloped countries with little to no government welfare or support systems individuals bearing the cost of having children is worth it because the children often directly work alongside their parents on farms or in businesses having children in these countries is also very cheap so they are effectively making a low-cost work force and a retirement plan all in one alongside other cultural factors this is why most low-income economies have such young populations with so many children but High income countries the cost benefit of having children is reversed raising children is very expensive and

often requires parents to leave the workforce for an extended period of time there are also laws in most of these countries against using children for labor even in family businesses and there is no expectation that the children will financially support their parents in their old age because there are already alternative systems in place to do that because of this almost every major and developing economy around the world today is dealing with some kind of demographic issue where their people are simply not having enough children to continue this cycle of young Generations looking out for the

elderly if a majority of people get too old to work it will put a significant strain on a few young people who still can either directly as more and more of the workforce gets dedicated to looking after the elderly or indirectly as young workers are forced to pay higher taxes to cover the costs of looking after an aging population this is already happening the labor force participation rate in most countries is already falling as people are opting out of the workforce earlier than what economists assume these figures also don't count for the growing population of

people over the assumed working age that will require even more care low-income and developing countries are going to feel this effect the most because a higher portion of their jobs involve physical labor but unlike service-based jobs and offices just can't be done by people that are too old or frail High income advanced economies also have another Advantage which is why they stay rich while low income and developing economies only get the drawbacks of brain drain which accelerates the problems they have with aging populations rich countries benefit from it by being the sink that those brains

drain into which is just terrible imagery but you get what I'm saying here rich countries that are desirable destinations to live and work will get their peak of skilled young workers who want to move there to start a better life most advanced countries can pick how many skilled workers they want to enter their economy simply by increasing or decreasing the amount of skilled worker visas they give out after the global pandemic and record unemployment rates combined with low labor force participation a lot of governments are opening up to record numbers of skilled migrants not only

will these workers help to fix all other problems of an aging population they can also act as a form of economic stimulus people moving to a new country will need to buy a lot of new stuff to get themselves established new cars new furniture new phones and internet plans and of course a new house and everything that comes with it whether they are renting or buying a skilled migrant will be bringing money from their home country into the host country to stimulate their economy one area where this is most apparent is in schooling one of

the primary paths to residency for most people moving from a low income or developing economy into an advanced economy is through student visa programs people that have completed a University degree in a developed country are more likely to be successful if they apply for a working Visa after they graduate because the host country will recognize their degree and be confident of the applicant's language skills and ability to be productive enough to at least pass University exams and assignments University degrees in most schools and advanced economies are significantly more expensive for international students because there are

no government pricing controls combined with lots of demand so those students provide a great source of Revenue to these centers of Education this is not without its problems in my own home country of Australia education is one of the largest exports we have we receive more money from abroad to pay for University fees than we do for petroleum or natural gas because this is so lucrative there has been a trend to make sure that International students get what they pay for no matter what which is a universe degree this has caused multiple scandals where professors

were pressured into passing poorly performing international students just to make sure that the university kept a good reputation for more International students in the future this is not a problem by any means unique to Australia either and universities around the world are going to struggle to balance the temptation of easy money from International students and their families who are willing to pay almost anything for a free stepping stone into a life in an advanced economy and academic Integrity International students also take the places of local students who might have wanted to attend a university but

missed out because their grades went high enough to compete with their local cohort as well as students from other countries this wouldn't be such a big problem if it was totally fair because nobody is owed a place in these schools and if local students don't meet the standards of enrollment they shouldn't be let in just because they were born in the same country the university operates in but again there have been multiple instances where International students that do make the cut arrive for their first semesters with little to no language skills and questionable academic performance

if students have been let in from abroad at the expense of local students just because they pay more money then that is obviously a problem these significant small scale issues aside though if we look at this process from a macroeconomic perspective it's almost the perfect way to introduce skilled labor into an economy the country receiving International students gets direct stimulus from abroad which funds their research institutions it also gets stimulus as though students need to pay for their everyday living expenses like housing food and entertainment a lot of country student visa programs will allow students

to work part-time jobs while they're studying but even still most of the money to cover these expenses will be coming from their family your personal savings back at home even if they do take a part-time job that can often help the host country because they will normally be working the unskilled and not particularly well paid jobs that people don't care about missing out on as soon as they graduate from University if they then enter the workforce in the host country they are starting out literally at the very beginning of their careers so they are maximizing

the time that they can add value and pay taxes to a country they did not have to support them while they were children this also ensures that advanced economies get the best and brightest workers to progress Innovation to make sure that their Industries are more advanced and competitive than any alternatives that come from developing economies that lose their most promising innovators so if this is such a problem that is already stifling the growth of dozens of countries around the world how can economists stop it the simple fact is that advanced economies are almost always going

to be more desirable places to live and work than developing economies not only because they offer higher incomes to workers but also because they generally have lower levels of corruption crime and pollution while also having better access to healthcare education and other Public Utilities again of course this is a generalization there are examples of certain developing economies that beat out certain advanced economies in these factors but it generally holds true and that's the first thing that can be done to at least slow brain drain people will be less likely to move abroad if living conditions

at home are good so making sure a developing country is a good place to live is a very important factor in determining whether or not it will make it to become an advanced economy of course getting rid of pollution crime and Corruption while providing better Public Services is much easier said than done but it does highlight the importance of people even in macroeconomics where the focus tends to be on big Industries and trade deals the other more direct approach countries can take is to invest heavily into industries that have the potential to make them advance

economies South Korea Japan and Taiwan some of the most successful economies of the last five decades all got started with strong government programs designed to build Out World leading technical Industries in the country this is distinct from low-cost Manufacturing in places like China or India and even from services in places like the Philippines these are industries that are controlled by the greatest innovators not the lowest bidders Japan still designed to manufactures a lot of the world's most advanced electronic devices South Korea is home to dozens of globally competitive companies and by now I'm sure that

you're all aware of just how important taiwan's industries are to the global economy investment in these industries often involves paying lots of money to people so that they move to less desirable countries and provide their expertise for long enough to get the industry off the ground it's also a risky Endeavor with no guarantees of success and it could just as easily take up a lot of government money that could have been spent on providing public services and getting rid of crime corruption pollution and all of the other things that made people want to look abroad

for a better life to begin with this subject was actually suggested by a commenter on a community post we made asking for video ideas the team and I had been doing background research on brain drain and its effects on developing economies for a while because it was important to a lot of national economies that we'd explored over the past few months but this comment was what made us decide that it probably needed a video all of its own so if you have an economic topic that you think deserves a video make sure to let us

know thanks for watching mate bye