Tag: Human capital
Human Capital Loss Among Belarusian and Ukrainian Migrants to the EU
This policy brief examines the underutilization of human capital among involuntary migrants from Ukraine and Belarus in Poland and Lithuania. Focusing on those who migrated after 2020 (Belarus) and 2022 (Ukraine), the brief investigates the factors influencing the conversion of their pre-migration skills into gainful employment in their host countries. Our findings show that despite many migrants possessing high levels of education and professional qualifications, structural barriers and low convertibility of their skills, hinder their full labor market integration. This skill underutilization not only limits migrants’ professional growth and earning potential but also deprives the host countries of valuable skills and potential economic gains.
Effective labor market integration substantially benefits both host and sending countries and migrants themselves. For host nations, successful integration can alleviate critical skill shortages, boost productivity, and drive economic growth (Boubtane, Dumont, & Rault, 2016; Boubtane, 2019; Engler, Giesing, & Kraehnert, 2023; Bernstein et al., 2022). Conversely, inadequate integration leads to underemployment, diminished potential, and economic inefficiency. Countries of origin can benefit from remittances, the return of migrants with enhanced skills, and strengthened international economic ties. However, poor integration risks an uncompensated “brain drain” (Reinhold & Thom, 2009; Barrett & O’Connell, 2001; Iara, 2006; Barrett & Goggin, 2010; Co, Gang, & Yun, 2000). For migrants, the ability to continue their careers means higher earnings and less stress from the acquisition of a new profession, while the non-utilization of existing skills results in their depreciation, potentially causing permanent wage reductions even upon return to the home country (Bowman & Myers, 1967).
Migrants can be broadly categorized into voluntary migrants or forced migrants. Voluntary migrants assess labor market prospects beforehand and often possess convertible human capital – one that can be used in a new labor market. This group often includes professionals like IT specialists and scientists and those in low-skilled but highly transferable professions. Forced migrants, on the contrary, may be utterly unprepared for changes in jurisdiction and possess skills of limited transferability. For example, even highly specialized professions requiring extensive training and substantial human capital, such as lawyers, officials, and teachers, often prove “non-convertible“ (Duleep & Regets, 1999). These individuals’ skills are frequently country specific.
Low convertibility of skills generates significant negative consequences. Highly educated professionals, for instance, may find themselves relegated to low-paying, unskilled jobs, unable to leverage their expertise. This hinders their professional development and deprives host countries of valuable skills and potential contributions to economic growth. Addressing these mismatches is crucial for maximizing the benefits of migration for stakeholders in both home and host countries.
Forced Migration from Belarus and Ukraine
The political crisis in Belarus, starting with the contested 2020 presidential elections, led to widespread repression and significant forced migration. Belarus’s role in supporting Russia’s 2022 invasion of Ukraine exacerbated this situation, resulting in approximately 300,000 Belarusians seeking refuge in the European Union (Eurostat). This number accounts for a substantial proportion of the country’s 9 million population and its approximately 5 million-strong labor force (Belstat).
Russia’s full-scale invasion of Ukraine triggered the most significant wave of migration in Ukrainian history, with over 6 million of the pre-war 44 million population fleeing to the EU (UNHCR). About 90 percent of the initial refugees were women and children due to a mobilization law preventing most men aged 18 to 60 from leaving (UNHCR).
Online Survey and Migrant Differences
To better understand the situation of migrants, their integration into the EU labor market, and to develop data-driven recommendations for improving their conditions, the CIVITTA agency, in partnership with BEROC, conducted an online survey in the summer of 2024. This brief is based on the survey results. The survey includes responses from 616 Ukrainian nationals who migrated to Poland or Lithuania after Russia’s full-scale invasion of Ukraine in 2022, as well as 173 Belarusian migrants who left their home country after 2020. The research focuses on individuals aged 28 to 42, providing insights into their experiences and challenges in the labor market in their host countries. While we acknowledge the sample’s limitations in terms of representativeness, we believe the findings provide valuable insights into the specific challenges faced by involuntary migrants and their adaptation strategies in the new labor market.
Key differences characterize these migration waves. Ukrainian migration comprises of more women, while Belarusian migrants show a more balanced gender distribution, with 47 percent women in our sample versus 62 percent for Ukrainians. Family separation is also notable, as 91 percent of married Belarusians live with their spouses, compared to only 75 percent of Ukrainians (due to the mobilization law).
Survey respondents from both groups possess high levels of human capital with 60 percent of Ukrainians and 90 percent of Belarusians holding higher education degrees. Among Belarusians, 94 percent had over five years of work experience before migration, with and 79 percent of Ukrainians stating the same.
Ukrainian return intentions are split: 38 percent plan to return, 19 percent will not, and the rest are undecided. An end to the war and changes in Russian foreign policy would increase return rates to 70 percent. For Belarusians, 35 percent plan to return, 38 percent will not, and the rest are undecided. Education level is key, as less-educated Belarusians are more likely to stay abroad. An end to repression would increase the share of those Belarusians who want to return to 70 percent, and a regime change would increase this percentage to 82 percent.
Factors Conditioning Human Capital Loss
As expected, due to the involuntary nature of migration of the two groups in focus, a large fraction of survey participants reported losing their profession after migration. As Figure one shows, 48 percent of Belarusians and 63 percent of Ukrainians in our sample reported full loss of their prior careers. The lower percentage of Ukrainians fully retaining their careers (23 percent) compared to Belarusians (44 percent) could be attributed to several factors, including the more recent and disruptive nature of the Russo-Ukrainian war leading to more significant displacement and challenges in finding comparable work. The higher percentage of Ukrainians starting their careers from scratch (49 percent compared to 29 percent among Belarusians) also supports this idea.
Figure 1. Preservation of careers in the EU
Source: Authors’ computations based on survey data.
To foster an evidence-based discussions on the smooth integration of migrants into the EU labor market and the prevention of human capital loss, it is crucial to examine the individual factors that influence career continuity for Belarusian and Ukrainian migrants. We therefore utilize a logistic regression model to identify key predictors that increase the likelihood of migrants remaining in their profession after relocating to Poland and Lithuania.
In our quantitative analysis, an outcome binary variable for staying in the profession is equal to 1 if an individual either “continued career started in a home country (in the same position)” or “remained in the same profession but started working in a position lower than the one held before emigration.” As predictors, we consider a set of sociodemographic variables reasonably related to the probability of staying in the profession and dummy variables for the most common spheres of employment (see Table 1).
Table 1. Overview of model variables
Who Maintains Their Career After Emigration?
Based on the regression coefficients in Table 2, we can identify characteristics related to losing career-specific human capital. In our regression, we control for both home and host country factors. One noteworthy finding is that, while Ukrainian migrants in our sample report significantly higher rates of career loss than Belarusian migrants, nationality itself does not emerge as a significant predictor of career loss once other characteristics are accounted for.
Our results also show that the probability of staying in a profession is higher among men, those with more extended work experience and higher income before emigration, and those who were invited to a host country by an employer. The same holds for entrepreneurs, those who do not plan to return, and those employed in the fields of Architecture & Engineering and Information and Communication Technologies.
Table 2. Results of regression analysis
Note: *** Significant at the .001 level. ** Significant at the .01 level. * Significant at the .05 level.
Conclusion
Several conclusions and policy advice can be derived from the survey results.
The higher likelihood of entrepreneurs staying in their profession suggests that supporting migrant entrepreneurship can be a valuable strategy to retain human capital. This can be done, for example, by:
- Providing access to resources, mentorship, and funding for migrant entrepreneurs.
- Streamlining the procedures for migrants to start and operate businesses.
- Facilitating access to capital for migrant-owned businesses.
The research highlights the disproportionate impact of human capital loss on women. Therefore, policies should include gender-specific programs that address women’s unique challenges in integrating into new labor markets. This could include:
- Skills retraining and certification programs: Designed to align women’s existing skills with the demands of the host country’s labor market, with consideration for childcare needs and other barriers women may face.
- Connecting women migrants with established professionals in their fields to facilitate knowledge transfer and career guidance.
- Language training programs: Tailored to the specific needs of women, potentially incorporating childcare support to enable participation.
The study highlights the positive role of international companies in supporting employee relocation. Respondents who were invited by an employer demonstrated the most successful integration into the new labor market. To enhance and strengthen these networks, policies may focus on:
- Encouraging corporations to hire and train migrant workers, potentially through tax breaks or other incentives. This could include partnerships with migrant-serving organizations to connect companies with qualified candidates.
- Developing digital platforms that connect migrants with diaspora networks, potential employers, and relevant resources.
In addition, policies should address the non-recognition of foreign qualifications, simplifying and expediting the procedures for recognizing foreign degrees and professional certifications. Initiatives to create targeted training programs could complement such policies and allow migrants to quickly acquire any missing skills or certifications required by the host country’s professional bodies. These policy measures would enhance the utilization of migrants’ human capital, benefiting both migrants and host countries while also supporting sending countries. This could be achieved by fostering a successful diaspora or facilitating productive reintegration in the case of return migration.
References
- Barrett, A., & Goggin, J. (2010). Returning to the question of a wage premium for returning migrants. National Institute Economic Review, 213, R43–R51. https://doi.org/10.1177/0027950110389752
- Barrett, A., & O’Connell, P. J. (2001). Does training generally work? The returns to in-company training. ILR Review, 54(3), 647–662. https://doi.org/10.1177/001979390105400403
- Bernstein, S., Diamond, R., McQuade, T. J., & Pousada, B. (2022). The contribution of high-skilled immigrants to innovation in the United States (No. w30797). National Bureau of Economic Research. https://doi.org/10.3386/w30797
- Boubtane, E. (2019). The economic effects of immigration for host countries. L’Economie politique, 84(4), 72–83. https://doi.org/10.3917/leco.084.0072
- Boubtane, E., Dumont, J.-C., & Rault, C. (2016). Immigration and economic growth in the OECD countries 1986–2006. Oxford Economic Papers, 68(2), 340–360. https://doi.org/10.1093/oep/gpv024
- Bowman, M. J., & Myers, R. G. (1967). Schooling, experience, and gains and losses in human capital through migration. Journal of the American Statistical Association, 62(319), 875–898. https://doi.org/10.2307/2283723
- Co, C. Y., Gang, I. N., & Yun, M.-S. (2000). Returns to returning. Journal of Population Economics, 13, 57–79. https://doi.org/10.1007/s001480050121
- Duleep, H. O., & Regets, M. C. (1999). Immigrants and human-capital investment. American Economic Review, 89(2), 186–191. https://doi.org/10.1257/aer.89.2.186
- Engler, P., Giesing, Y., & Kraehnert, K. (2023). The macroeconomic effects of large immigration waves. IAB-Discussion Paper. https://doi.org/10.5167/uzh-239271
- Iara, A. (2006). Skill diffusion in temporary migration? Returns to Western European working experience in the EU accession countries (Development Studies Working Paper No. 210). Centro Studi Luca d’Agliano. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=921492
- Reinhold, S., & Thom, K. (2009). Temporary migration and skill upgrading: Evidence from Mexican migrants. University of Mannheim, unpublished manuscript.
- UNHCR. (n.d.). Operational Data Portal. https://data.unhcr.org/
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
The 2024 FREE Network Retreat: Economic Research and Capacity Building in Moldova
The 2024 FREE Network Retreat, held in Chisinau, Moldova on September 11-13, brought together representatives from the FREE Network institutes and other stakeholders, focusing on economic research and capacity building, especially in the context of Moldova’s EU accession efforts. The event featured general sessions on institutional development, special tracks on academic, administrative and communication topics, and a half-day conference on “Economic Research and Capacity Building“. Key discussions addressed challenges such as Moldova’s weak economic research infrastructure, policymaking gaps, and the need for capacity building. Several examples of Moldovan success stories were also highlighted. The event concluded with a call for strengthened collaboration and donor support towards economics education and fostering Moldova’s research and capacity-building landscape.
Introduction
The FREE Network Retreat is an annual event for researchers and administrators from the FREE Network institutes. The 2024 Retreat took place in Chisinau, Moldova, September 11-13 and was attended by representatives from BEROC (Belarus – currently in exile in Lithuania), BICEPS (Latvia), CenEA (Poland), ISET (Georgia), KSE (Ukraine) and SITE (Sweden). In addition, although not being a member of the FREE Network, the New Uzbekistan University in Tashkent and its Greater Eurasia Research Center (GEAR) were represented.
Like at previous retreats, there were two general sessions with a focus on the development of the individual institutes and the Network as a whole, and three tracks of special sessions on academic, administration and communication topics. The Retreat also involved a meeting of the FREE Network’s joint initiative The Forum for Research on Gender in Eastern Europe (FROGEE) – and a special side event on the integration of Ukrainian Refugees in Moldova.
An integral part of this year’s Retreat was the half-day conference, “Economic Research and Capacity Building”. Drawing on the FREE Network’s experience, the conference focused on how capacity building and research can facilitate the transformation of societies and economies, particularly within the Moldovan context, on its path towards EU-accession. In addition, it provided the FREE Network members an opportunity to share their experiences of capacity building, economic research and policymaking with Moldovan stakeholders.
The Conference was open to external participants interested in the topic, particularly policymakers, academics, and think tank representatives. It clearly illustrated the need to strengthen not only economic research and capacity building but also academic education in economics and related fields, improve the quality and access to data, and raise the level of competence in economics within the government and public sector in general.
A summary of the Conference discussions is provided below. For a full overview of the program and participants see the Appendix.
The Opening Session
The opening session started with the general observation that EU integration, in addition to being a political and security issue is primarily an economic issue with a need for economic research and analysis that can inform policy discussions and educate current and future stakeholders. Within this context, all the FREE Network institutes have considerable experience engaging in research and discussions of policy and policy reform within the region. With Moldova not (yet) represented in the FREE Network, the Conference served as a platform for the Network to learn and eventually engage in sustainable partnership(s).
The discussion then shifted to the Moldovan situation and the challenges ahead on the path to EU membership. Several challenges were identified: a lack of economic research, with most existing research being rather weak; missing connections between researchers and policymakers; a shortage of human resources; and generally weak institutions; as well as policies often being based on trial and error rather than evidence-based decision-making.
To address these challenges several actions were suggested including the need to strengthen research and independent economic thinking through capacity building; drawing on the experience of the countries that have joined the EU during the last two decades; developing international research cooperation through networks like the FREE Network; business-friendly practices and treating investors right while at the same time encouraging entrepreneurship and educating society on the importance of private and public investments.
The discussion also addressed activities supporting civil society undertaken by the EU and Sweden, respectively. Examples of activities include building partnerships and strong ecosystems for innovation and entrepreneurship, supporting reforms cutting red tape and improving the business climate in general as well as supporting the Academy of Economic Studies Moldova and the Association of Women in Business.
Research and Capacity Building – the Moldovan Perspective
The discussion started with a presentation of three Moldovan success stories. The first one is a recently launched program on media, gaming development and animation. Currently, 1,000 students are being enrolled. The program attracts Moldovans from all over the country as well as Moldovan students abroad who decided to terminate their studies abroad to go back to Moldova and enrol in the program. The success of the program is a good example of cooperation between industry, higher education institutions and the Ministry of Education opening up to new professions and programs that attract young people.
The second example is taken from the fashion industry. Traditionally Moldova has been a country where sewing takes place thanks to cheap labor. However, in recent years a “pipeline” of talent, design and brands has developed. As a result, the value added in the industry and export revenues as well as wages have increased.
The final example is the Moldovan tech industry. The tech industry has been at the forefront and could be considered the tiger of the Moldovan economy with growth rates of 30-40 percent per year. There are two main reasons behind this success: the rapidly developing Moldovan startup scene combined with a 7 percent single tax mechanism for the tech industry.
The discussion then turned to the role of research in policymaking. The first argument put forward focused on the impact (or rather the lack of impact) of research and analysis on Moldovan policymaking. As the examples above show, the Moldovan economy has the potential to develop – however, the policy discussion does not focus on the transition towards higher-value activities. On the contrary, even though Moldovan research highlights the role of transition to higher value-added, this argument has essentially been ignored in the policy debate that has been mostly characterized by rhetoric on job creation rather than transition to an economy that creates jobs within the high(er) value-added sectors. Unfortunately, this is not the only example of Moldovan policy discussions and decision-making ignoring the research perspective and outcomes. Among other examples mentioned is the recent tax reform experience and programs supporting Small and Medium Sized Enterprises. Currently, reforms are driven either by purely political reasons or by lobbying or by any other vested interests. There is essentially no impact assessment or any economic analysis underpinning the decisions. Due to the fact that policy initiatives neither are based on economic analysis nor on best practices, they are vulnerable to clientelism or corruption. The importance of rule of law was emphasized in light of Moldova’s anchoring to the EU and with reference to Latvia and the other Baltic states. It is a too important topic to be left to the lawyers and should hence be part of economic capacity building and research.
The second argument referred to access to reliable data needed for quality policy-oriented research. While the data collected by the National Bureau of Statistics in general is good, the main issue lies in accessing it. The Bureau does not have the resources to support researchers. To exacerbate the problem further, there seems to be no willingness among policymakers to address this issue. Given Moldova’s vulnerability to Russian disinformation and the increased pressure on Moldova, the issue of access to reliable data is even more pressing today than a few years ago.
To foster an informed policy debate and decision-making process taking evidence-based research into account, it would be desirable to create a platform to advocate the results of economic policy analysis where, e.g., policy papers and monitoring reports, could be presented and discussed by experts and decision-makers in the public and private sectors as well as the civil society.
The session continued with a discussion on human capital. The successful program attracting Georgians in the diaspora to return and work for the Georgian government, launched during the first decade of the 2000s, served as the point of departure for the discussion. The key to the success in Georgia was that the government was able to pay competitive salaries. This is one of the main challenges facing Moldova. Even though there have been some adjustments in government salaries during recent years, the government is still far from being anywhere close to paying the same salaries as the private sector in general and think tanks in particular. An understanding of this is important not only at the national level but also among donors. It was noted that there have been some adjustments in government salaries, but it has not been enough. Further, while the Moldovan diaspora are starting to return, they, however, have little governmental or political experience, which makes it difficult to involve them in, e.g. policymaking and development of support programs. It would be good to draw on experiences and best practices from other countries in the region – such as the Baltic states and Georgia – and use them as benchmarks, e.g., for the innovation ecosystem, incubators and accelerators.
Research and Capacity Building – the FREE Network Experience
The FREE Network institutes shared their experiences in capacity building and brain gain, developing an economics undergraduate program, research and policy impact, and network building through research.
ISET (Georgia) shared their experience on attracting talented economists in the Georgian diaspora back to Georgian academia, research, and government positions. The starting point was an initiative developed in collaboration with the donor community to establish a world-class economics school in the Caucasus – the International School of Economics (ISET). The school has developed from a small boutique school to a school with three academic programs (undergraduate and graduate) and about 700 enrolled students. ISET graduates are in high demand and are seen in the private and public sectors. The ISET Policy Institute plays a pivotal role in terms of contributing to evidence-based policymaking. Throughout the years more than 50 ISET graduates have been accepted in Ph.D. programs at top universities worldwide. Many of them have returned to Georgia and ISET after completing their Ph.D. Had not it been for opportunities offered by ISET and the Policy Institute, it is very unlikely that they would have returned. The FREE Network and the opportunities offered are a great resource for the ISET as well as for the ISET Policy Institute.
BEROC (Belarus – in exile in Lithuania since 2022) shared their experience on the process of creating and launching an undergraduate program in economics and business. BEROC started as a research center, but the idea to establish a Bachelor program in economics and business had been around for several years. As part of the re-organization and reformation of the European Humanities University (Belarusian, but in exile), the European Commission approached BEROC asking if it could develop an undergraduate program in economics and business for Belarusian students.
The challenge has been two-fold: first, in the current political situation, Belarusian people are “locked within the country” and for them it is much easier to go to Russia for studies. In addition, the cost of living and the tuition fee (although low by Baltic standards) provide additional barriers to potential students. Second, BEROC operates in exile themselves. Nevertheless, a Bachelor program in economics and business will be launched in October 2024 with the support of Belarusian business in exile. Thanks to cooperation with partners within the FREE Network the program is at the global frontier.
BICEPS (Latvia) provided an overview of how research can contribute to the policy agenda. BICEPS’s first policy reports, published more than 15 years ago, focused on the unsustainable Latvian economic growth and inflation levels at the time. These reports reached conclusions that, while correct ex-post, were contrary to those of the Latvian Central Bank. This divergence sparked substantial discussion at both the political level and in the media.
In the early 2010s, BICEPS was commissioned to produce the first-ever Latvian Competitiveness Report. This report has served as a foundation for policymaking and has left a lasting mark on the policy agenda. Furthermore, following BICEPS’s research on the shadow economy and the annual presentation of the shadow economy index, the Ministry of Finance, through public procurement, commissioned a 2021 project to develop a model addressing the impact of the shadow economy.
The Global Entrepreneurship Monitor (GEM) Latvia and the EUROMOD tax-benefit microsimulation model are long-term projects run by BICEPS. Current projects include one focused on the impact of broadening the sugar tax base, a regional Global Entrepreneurship Monitor study, a project on road congestion tolls in cities and the development of sustainable agriculture in Africa.
CenEA (Poland) might be small in terms of people employed, but disproportionally big in terms of impact and presence in the Polish policy discussion. From the very beginning, CenEA has aimed at combining policy with solid economic research. The focus has primarily been in the areas of fiscal policy, ageing and health – with the latter two being major issues in Poland.
For CenEA, the FREE Network has been fundamental, both for funding and for building its credibility and position. CenEA has played an active role in terms of broadening and deepening the cooperation within the FREE Network. It has been very active in developing and coordinating the FROGEE project. The project (financed by the Swedish International Development Cooperation Agency, SIDA) has run for six years and covered a wide range of topics within the field of gender equality. It has resulted in several FREE Policy Briefs, policy and research papers, and several conferences and workshops. In addition, the project has contributed to the development of tools and skills for both senior and junior researchers within the Network. Based on the success of the FROGEE project, new projects and initiatives within the Network have been developed.
SITE (Sweden) has taken the lead on the FREECE (the Forum for Research on Eastern Europe: Climate and Environment) project. The project has been around for eighteen months with a focus on the transition from an economy based on the production and consumption of fossil fuels to an economy based on the production and consumption of zero-carbon renewables. This will be a challenge for everyone, especially for countries throughout Eastern Europe that often rely on the extraction and consumption of fossil fuels for employment as well as for energy needs.
The FREECE project provides several opportunities to engage in policy-relevant research while at the same time filling a gap in the literature.
Initiatives and the Road Ahead
At the current stage of Moldovan economic and political development there is a higher demand for analysis and applied research, rather than general and theoretical research. In other words, policy relevance needs to be in focus. At the same time, such applied analysis and research need to involve well-educated human capital with relevant skills, such as university graduates. This puts focus on the role of universities and how they can reform.
The Moldova School of Economics initiative was launched approximately half a year ago. Among the first activities were public lectures on economic behaviour and public policies. In September, in cooperation with CERGE-EI in Prague, the first short economics course was launched. Currently, there are discussions with the Ministry of Education and the State University on developing the initiative into an actual program. So far, the response has been positive. The vision is to create the Moldova School of Economics into an initiative that reaches out not only to Chisinau and Moldova but to the wider region.
The session on this topic proceeded to discuss how the FREE Network could support Moldovan research and capacity building, focusing on its experience in implementing various projects. One potential starting point would be a summer school involving both the FREE Network and Moldovan economists living abroad. There are already contacts with members of the diaspora who have expressed a willingness to participate as faculty members, without compensation. Additionally, there is a need for shorter courses or executive classes aimed at individuals in ministries. Topics to be covered may include basic macroeconomic analysis, fiscal policy, and economic growth. It is also important to incorporate microeconomic subjects, such as the factors driving innovation and the development of economic clusters.
Concluding Comments
The FREE Network Retreat and conference has shown that many of the issues currently facing Moldova, have at least partly been addressed by the FREE Network members in their respective countries. Looking forward this should provide a good basis for cooperation between the Network and Moldovan partners. Three broadly defined areas for collaboration and partnerships were identified: (i) education and training: at the university level as well as for ministries and government agencies; (ii) creation and development of a good environment for research and policy analysis; (iii) communication and outreach.
The dialogue that has been initiated during the conference should continue and include a discussion on how to attract donors to support long-term cooperation that contributes to the needed strengthening of research and capacity building in Moldova.
Appendix
Conference Programme: Economic Research and Capacity Building
9.30 Conference Opening
- Torbjörn Becker, Director, Stockholm Institute of Transition Economics
- Jānis Mažeiks, Ambassador of the European Union to the Republic of Moldova
- Katarina Fried, Ambassador of Sweden to the Republic of Moldova
10:00 Research and Capacity Building – the Moldovan perspective
- Doina Nistor, Chief of Party, Moldova Future Technologies Activity
- Adrian Lupușor, Executive Director, Independent Analytical Center Expert-Grup
- Kálmán Mizsei, EU Adviser to the Government of Moldova
10:50 Research and Capacity Building: The FREE Network Experience
- Tamar Sulukhia (ISET, Georgia): Capacity building and brain gain
- Dzmitry Kruk (BEROC, Belarus – in exile): Development of a new academic programme
- Marija Krūmiņa (BICEPS, Latvia): Research and policy impact
- Michal Myck (CenEA, Poland): Network building and the FROGEE experience
- Julius Andersson (SITE, Sweden): Network building and the FREECE experience
11:30 Initiatives and the Road Ahead
- Mihnea Constantinescu, Advisor to the Governor National Bank of Moldova
- Misha Zeldin-Gipsman, the Moldova School of Economics Initiative
12:10 Concluding Comments
- Torbjörn Becker, Director, SITE
- Kata Fredheim, Associate Professor, BICEPS and Stockholm School of Economics in Riga
12:20 Lunch and Networking
Conference moderator: Kata Fredheim, BICEPS and SSE Riga.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Natural Resources, Intangible Capital and Sustainable Development in a Small, Oil-Rich Region
“Where scientific enquiry is stunted, the intellectual life of a nation dries up, which means the withering of many possibilities of future development.” – Albert Einstein, 1934 The rampant unemployment rates and the general contraction of economic activity in many western countries rekindled the fear of emigration and brain drain, which for a while seemed to be exclusively a developing-world problem. This brief illustrates a potential new approach to the issue, through a recent experience in a small but oil-rich region of Southern Italy.
Economic Growth and Brain Drain
Since the times of Solow, economic theory represents growth as the result of a process not unlike some sort of portfolio management. Just like any individual investor, countries own and need to manage certain assets, characterized by different properties and returns: some are exhaustible, others are renewable or living, and ensure a sustained stream of income. In the original formulations, the economy’s productive assets were identified in land, capital and labor, to which human capital was soon added. In 2006, the World Bank published estimates of 120 countries’ total wealth, in an attempt to introduce a broader view of what these assets really are [1]. The report classified a country’s capital into three main types: natural, produced (physical) and intangible. A striking pattern emerged. While the share of produced assets in total wealth is virtually constant across income groups of countries, the share of natural capital tends to fall with income, and the share of intangible capital rises. This means that rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity.
There is an important relation between the different types of assets. In order to avoid illusory and temporary growth based on consuming the readily available natural capital, efficient management through saving and investment can transform one type of asset into another, achieving sustainability over time. Although this may sound as no big news, the analysis of the actual savings and rates of growth in the different form of capital reveals far from ideal situations all over the world. In many resource-rich developing countries, savings rates have been negative for many decades, meaning that resource rents have been at best used for consumption. In the worst cases, they have fueled corruption and private enrichment of small elites, as highlighted by the extensive literature on the “resource curse”.
Also, renewable natural resources are often exploited in an unsustainable fashion. One case in point is the thorny issue of fish stocks, but many more examples are discussed in the literature on ecosystem services. Even the intangible capital is under stress in many places. In the wording of the 2006 World Bank report, “intangible assets include the skills and know-how embodied in the labor force; social capital, that is, the trust among people in a society and their ability to work together for a common purpose; all those governance elements that boost the productivity of labor: an efficient judicial system, clear property rights, and an effective government.” Probably the first component in the list, what is traditionally indicated with the term human capital, is the most tangible, observable and relatively controllable part of it.
Controlling the Brain Drain?
Although there are many arguments in favor of international careers and general workforce mobility,[2] some regions experienced negative and prolonged net outflows – emigrants minus immigrants – to the extent that they now face a real risk of hold ups in their economic development. This, due to shortages of vitally needed high-skilled personnel. Even the economic sustainability of many basic services and businesses is in doubt due to the shrinking customer base.
Southern Italy is one of these regions. The net outflow of people with a bachelor or higher degree is negative[3] even at the national level, -2% over the latest ten years. In southern Italy, with a population of just above 13 million, the net balance of emigrants and immigrants over the same period amounts to -630,000. 70% of these people are aged between 15 and 34, and 25% hold at least a bachelor degree. To this figure, which is based on changes in official residence and therefore grossly underestimates the real size of the phenomenon, must be added the 150,000 that on average every year join the flow of internal migrants or long-distance commuters from the south to Northern Italy. Among these people, 47% are aged between 15 and 34, and almost 30% hold a bachelor or higher degree. The reason for these massive outflows can be identified in the labor market dynamics. If we break down the average 22% decline in job creation for youth between 2008 and 2011, new hires declined by 30% for youth with a bachelor degree and 14% for higher degrees, against 11% decline for youth with only secondary education.[4]
As opposed to physical capital, recent research shows that loss of human capital can have long lasting crippling consequences for economic growth (Waldinger, 2012). Among the policies that have been tried in order to stop or counterbalance the brain drain, a first set targets human capital as embodied in the workforce, i.e. tries to attract highly trained people. Probably the most popular are economic incentives in the form of tax rebates, higher wages or other job-related benefits and amenities. This kind of incentive regime exists in Italy since December 2010, though only targeting Italian nationals. However, for many high-skilled professionals, the important factors are others, such as a generally innovative and creative environment, a network with a critical mass, a transparent and competitive labor market not contaminated by politics, high quality support services, and other conditions that are not as easy and cheap to modify. Some countries have played the card of instead attracting prestigious foreign schools to their national territory to prevent their brilliant youth from leaving in the first place. Many famous western universities have already initiated partnerships with or lent their names to schools and universities in these countries and even built replicas of themselves – mostly in Asia – so as to get a toehold in the world’s largest education market, or in the Gulf States, where financial resources abound. There are successful examples of such partnerships in Italy, too.
A different approach has been taken by the new government, with the realization that the country can benefit from the pool of expatriated talents without moving them permanently back. A program of facilitation for visiting scholars and exchange students was thus launched in September 2012. But a step even further is actually possible. A network of scholars and high-skilled professionals that want to contribute to the development of a particular country or region, for example their place of origin, does not require physical presence on the territory, and not even any formal or institutional bond. The only needed ingredient is the Internet. Not removed from the environment and the conditions where they achieved success, these people can actually contribute even more. This is the idea behind, for example, Innovitalia.net and other smaller independent initiatives inspired by the concept of crowd-sourcing.[5]
The Experience of Basilicata
I recently witnessed (what I hope is) the birth of one such network in the region where I am from. Basilicata, also known as Lucania, is a small, poor region of less than 600,000 inhabitants scattered across 131 different municipalities on a territory of barely 10,000 squared kilometers, between the heel and the toe of the boot that the Italian peninsula resembles. Here, the crisis hit especially hard and migration outflows are since then even stronger, especially among youths. According to SVIMEZ (a think tank focused on entrepreneurship and economic activity in Southern Italy), Basilicata has lost 10% of its regional GDP since 2007, much more than the national average of -4.6%. Compared to other large European economies, Spain is currently at -2.7, while Germany and France, notwithstanding the low annual growth rates, are now back at the same level as in 2007. The youth employment rate (with the generous definition of 15-34) is alarmingly low at 30%, down by 15% since 2007, and only 24% for women. As a result, the consumption level of 27.5% of families is now below the poverty threshold, compared with 11% of families at the country level.[6]
Enter Europe’s largest onshore oil and gas reservoir; about 150,000 oil barrels are extracted in Basilicata every day, covering 12% of the national oil demand. The exploitation started in the late 1990s, although the reservoir has been known since at least the 1970s. It is expected that these oil fields will be operational until 2022, but at least one more reservoir with about the same estimated capacity remains unexploited. The regional government has for the time being blocked any new concession, hoping perhaps to negotiate better conditions. The truth is, there have been strong concerns – related to lack of transparency and in some cases to alleged corruption – voiced at the actual quantities of extracted oil and what is a fair distribution of revenues. After more than 10 years, it is hard to claim any major social impact of the project: there is a clear lack of funds to invest in local small and medium size businesses and, as observed above, unemployment in the area remains a problem while the regional population has plummeted.
Is this a case of “resource curse”? Not really. There is no clear evidence of corruption, or elite capture – the problem seems to be mostly poor management and a lack of ideas, mixed with the deeply rooted penchant of local politics for populism and the clientela system (patronage). To give an idea, creativity in using the oil money did not go much beyond the restoration of many of the small town’s pavements and facades. In 2009, in line with the so called “Development Action Plan” of the Berlusconi government, an 80 euro lump sum was distributed to all residents. After the crisis hit harder, the royalties have also been used to cover holes here and there in the current account. Data from the Ministry for Economic Development shows that capital investment in the region went down by 8.5% per year between 2008 and 2011, while current expenditure went up by 3%. Going back to the importance from the growth perspective of savings and investment versus consumption, it is worth remarking that current expenditure is (in most part) consumption.
Can this bounty instead become an answer to Basilicata’s troubles? This was the question driving the first Sustainable Development School, held at the end of October in Viggiano, a small town in the center of the oil field, hosting 23 oil wells. Sponsored by a number of institutions and associations, local or national,[7] the event attracted a group of 45 economists, sociologists, managers and entrepreneurs, engineers and culture sector specialists, in most part born in Basilicata and working or studying abroad. Seven of these participants were instead citizens of various countries in the Middle East and North Africa region, working or studying in Basilicata. This heterogeneous group worked together for two days on concrete proposals to be put on the administrator’s tables, in five main areas: Regional Economy in the new Euro-Mediterranean context, Energy and natural resources, Environmental protection, Infrastructure for environmental protection, Promotion of the historical, cultural and social heritage. Given the context, most projects focused on alternative proposals for how to use the royalties. The keyword was, however, sustainability. Everybody was well aware of the fact that for them to last longer than oil itself, these resources must be saved and earmarked to some productive use that, leveraging on other locally abundant resources, can start off a process of self-sustained development. The projects highlighted the stimulation of local small-scale entrepreneurship and the creation of employment opportunities as necessary ingredients for a fairer sharing of the revenues but most importantly for long-term sustainability.
Many local resources, not fully utilized at present, were brought in as examples: the abundant wood, the underexploited waterways, even the wastewater from bigger agricultural and animal farms, connected to the potential for small-scale generation of energy from renewable sources. On a slightly different note, the list continued with the historical and cultural heritage, natural beauty and the religious and culinary traditions that could support a much more developed tourism industry than what it does today. All of this, in the proposals of the participants, has the potential to support profitable businesses that bring employment to the community. This ingredient is considered crucial, in the perspective that the long-term survival of any (business) initiative requires tying its success to the welfare of the local communities. The focus was thus overwhelmingly on private initiative, with the public confined to the role of investing partner and provider of supportive infrastructure (material and immaterial) and services.
Overarching is undeniably the question of institutional quality, needed as the underlying canvas to support whatever initiative we hope to see blooming. A proposal that did not make it to the finals, though, involved the creation of a stable watchdog, either on local policies in general (and in particular on the use of the royalties) or more specifically focused on the environmental and health impact of the extractive activity. According to the more politically experienced participants, no administration would agree to finance an independent body with the explicit mandate to criticize them. Never mind that this type of institutions is common in other places. In Italy, the one body that currently operates with a watchdog function on the public administration, although limited to the financial aspect,[8] is facing threats of limitations of its powers. A lot remains to be learned. However, the perhaps most valuable outcome of this experience was, if not yet policy change at least a promising method to produce change, by mobilizing a latent ‘local’ resource and really transform oil rents in durable intangible capital.
References
- Where Is the Wealth of Nations? Measuring Capital for the 21st Century. Washington, DC: The World Bank, 2006
- The brain drain in Spain is mainly to Spain’s gain, The Economist, April 2012
- The Inclusive Wealth Report 2012, Cambridge University Press, 2012
- Rapporto sull’economia del Mezzogiorno, SVIMEZ, 2012
- Peer effects in science: evidence from the dismissal of scientists in Nazi Germany, Waldinger, F., The Review of Economic Studies, 2012
[1] Updates on these figures for a subset of 20 countries can be found in the newly released Inclusive Wealth Report 2012 , sponsored by a number of UN agencies, the first of what is intended to be an annual report looking at a broad measure of wealth. From the report: “Wealth is the social worth of an economy’s assets: reproducible capital; human capital; knowledge; natural capital; population; institutions; and time.”
[2] The Economist recently pointed out that “[w]hat some call “brain-drain” may in fact be a win-win situation for Europe’s economies. […I]n the short run, migration takes away pressure from budgets as the unemployed don’t claim benefits but move [abroad] instead. In the long run, there is a pool of highly skilled workers who have not fallen victim to hysteresis effects and can be re-activated for the [home] economy once the crisis is over.” However, it is not at all obvious that this migration is short-run, i.e. that these high-skilled workers will eventually go back. A survey of Italian scientists working aboard reveals, for instance, that the overwhelming majority excludes ever going back to Italy.
[3] The “import” of such people generally more than compensates the “export” in other big European countries.
[4] Source: SVIMEZ, 2012.
[5] A recent paper analyzing the experience of New Zealand (Davenport, 2040) reviews the waves of brain-drain response policies and calls this latest generation diaspora policies: “Diaspora policies are based on an assumption that many expatriates are not likely to return, at least in the short term, but represent a significant resource wherever they are located. This resource is not just embodied in the individual expatriate but also potentially includes their socio-professional networks. A key advantage of any diaspora option is that such connectivity initiatives do not require a large infrastructural investment in order to potentially mobilize this latent ‘national’ resource.”
[6] Source: ISTAT.
[7] Sponsors and partners included the municipal and regional administration, the Italian Institute for Asia and Mediterranean (ISIAMED) and its local branch, CeBasMed, the Val d’Agri National Park, the Regional Environmental Protection Agency, SVIMEZ and the University of Basilicata.
[8] The Corte dei Conti tribunal.