Economic Costs of the Malaysian Brain Drain: Implications from an Endogenous Growth Model

Abstract

This paper provides a first estimate of the economic costs and benefits of the Malaysian brain drain. To this end, a human capital augmented labour production function is specified, with endogenous skill and knowledge spill-over effects. From this model, the overall costs of the emigration of skilled Malaysians since 1980 are estimated as 0.7 per cent to 1.6 per cent of income per capita in 2010. Further endogenising the skilled emigration rate, skilled emigration flows are found to decline by 21,000 workers from 2010-2020 (or -29 per cent) if the New Economic Model growth targets can be achieved. These results suggest two policy implications. First, fundamental economic reforms will reduce skilled emigration flows, but will not reverse the continuous outflow of talent. Second, skilled immigration appears to be an economically more powerful lever than retention or reattraction of the Malaysian emigrant diaspora.