## 1. Labor Demand-Supply Model: Welfare Impact of Emigration

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### Introduction and motivation
- Emigration to the United States reduced the labor force in several source countries by 7–27 percent.
- The labor force in Mexico, El Salvador, and Jamaica was reduced by more than 10 percent due to emigration to the United States between 1970 and 2000.
- Turkey and Algeria: labor force reduced by about 10 percent due to emigration to Western Europe.
- For comparison, immigrants constitute about 12 percent of the United State labor force (Davis and Weinstein, 2002).
- The Caribbean region: about 12 percent of the labor force has migrated to OECD member countries; Central America: 7 percent (Docquier and Marfouk, 2005).

### Emigration composition by skill and regional patterns
- Aggregate emigration rates understate loss of the educated population; reductions are much larger in higher-schooling categories.
- Tertiary-education reductions due to emigration to OECD member countries (selected values):
  - Jamaica: tertiary-educated labor force reduced by 85 percent.
  - Guyana: tertiary-educated labor force reduced by 89 percent.
  - Haiti: aggregate emigration rate about 10 percent, but tertiary-educated labor force reduced by 84 percent.
- Majority of Caribbean countries lost more than 50 percent of tertiary-education segment and more than 30 percent in the secondary education segment (9–12 years of schooling).
- Almost all Caribbean nations are among the top 20 countries in the world with the highest tertiary-educated migration rates (Docquier and Marfouk, 2005).

### Theoretical framework and key formulas
- Welfare measured by GDP accruing to those who stayed behind; production function: Q = F(K,L).
- Emigration of magnitude M reduces labor force from (N+M) to N, increasing wage from w0 to w1; “emigration loss” arises from movement of inframarginal workers.
- Emigration loss (equation (2)):
  - Emigration loss = (1/2) s e m^2
- Gain to the workers who stayed (equation (3)):
  - Gain = (1 − m) s e m
- Loss to owners of the other factor (equation (4)):
  - Loss = (1 − m) s e (m/2) [preserved as structure in original text]
- External effects (high-skill externalities) modeled with elasticity gamma; two gamma values used: 0.05 and 0.1 (as in Borjas (1995)).
- Emigration loss without external effects (equation (6)):
  - Emigration loss = (1/2) s_s e_s m_s^2
- Emigration loss including external effects (equation (7), preserved form):
  - Emigration loss with external effects = )1( 1 )1( 12 1 2 su su ss ss sss ms ms ms ms mes− − +− − + γ γ γ γ

### Education cost of skilled migrants
- Public expenditure on education of emigrants treated as a social cost (opportunity cost); tertiary education subsidies in Barbados, Jamaica, and Trinidad and Tobago are particularly large (UNESCO, 2004).
- Other unmodeled fiscal costs include foregone tax revenue.

### Benefits of emigration
- Main quantifiable benefit: remittances.
- The Caribbean is the world’s largest recipient of remittances as a share of GDP.
- Remittances constituted about 13 percent of the region’s GDP in 2002.
- Latin America and the Caribbean: remittance flows exceeded combined flows of FDI and ODA to the region in 2003 (Terry, 2004).
- Other benefits: network effects in trade and FDI; possible favorable effect on human capital formation.

### Data sources and measurement
- Emigration-rate dataset: Docquier and Marfouk (2005) using recipient-country censuses; U.S. Census used separately for emigration to the United States.
- Emigration rate to OECD member countries defined as fraction of labor force having migrated; emigration rate by schooling S defined as fraction of labor force in schooling S having migrated.
- Worker remittances defined as monetary transfers sent by workers abroad for more than one year (recorded under “current transfers”).

Key empirical magnitudes:
- About 12 percent of the labor force from the Caribbean region migrated to OECD member countries over 1965–2000.
- Central America lost about 7 percent of its labor force to OECD member countries.
- Tertiary-educated migration rate from the Caribbean to OECD member countries: 70 percent (1965–2000, by level of schooling).
- Emigration to the United States (by schooling): about 60 percent of tertiary educated labor force migrated from the Caribbean to the United States (Table 2 summary).
- Adjusted emigration rates (restricting to migrants who emigrated at age 16 years or more) reduce tertiary-category rates, but the highly-educated labor force in the region was reduced by 58 percent due to emigration to the United States even after adjustment.
- Remittances and comparative 2002 shares:
  - Remittances: 13 percent of GDP (total remittances, 2002)
  - FDI: 6 percent of GDP (2002)
  - ODA: 1 percent of GDP (2002)
- Remittances rose from 3 percent to 13 percent of GDP between 1990 and 2002; ODA declined from 4 percent to 1 percent; FDI declined from 9 percent in 1999 to about 6 percent in 2002.

Public expenditure on education:
- Table 3 reports government expenditure on education per student (average 1999–2002); for Barbados, Jamaica, and Trinidad and Tobago expenditure on tertiary education is much larger relative to primary and secondary.

### Results — aggregate emigration loss vs remittances (Table 4 highlights)
Assumptions used:
- Labor’s share of national income s = 0.7.
- Elasticity of factor price of labor e = 0.3 and e = 0.4.
- Skilled-labor share of GDP assumed to be 0.3 for skilled-emigration calculations.

Emigration Loss (percent of GDP) and Average remittances 1980–2002 (selected countries):
- Antigua and Barbuda: Emigration Loss e=0.3 = 1.5; e=0.4 = 2.0; Remittances = 3.0
- Bahamas, The: Emigration Loss e=0.3 = 0.2; e=0.4 = 0.2; Remittances = n.a.
- Barbados: Emigration Loss e=0.3 = 1.1; e=0.4 = 1.5; Remittances = 2.3
- Belize: Emigration Loss e=0.3 = 0.9; e=0.4 = 1.2; Remittances = 4.7
- Dominica: Emigration Loss e=0.3 = 1.7; e=0.4 = 2.3; Remittances = 8.4
- Dominican Republic: Emigration Loss e=0.3 = 0.2; e=0.4 = 0.2; Remittances = 5.3
- Grenada: Emigration Loss e=0.3 = 3.0; e=0.4 = 4.0; Remittances = 11.0
- Guyana: Emigration Loss e=0.3 = 1.9; e=0.4 = 2.5; Remittances = 1.9
- Haiti: Emigration Loss e=0.3 = 0.1; e=0.4 = 0.2; Remittances = 10.1
- Jamaica: Emigration Loss e=0.3 = 1.3; e=0.4 = 1.7; Remittances = 7.4
- St. Kitts and Nevis: Emigration Loss e=0.3 = 2.6; e=0.4 = 3.4; Remittances = 6.9
- St. Lucia: Emigration Loss e=0.3 = 0.6; e=0.4 = 0.7; Remittances = 4.0
- St. Vincent and the Grenadines: Emigration Loss e=0.3 = 1.4; e=0.4 = 1.9; Remittances = 7.2
- Suriname: Emigration Loss e=0.3 = 2.4; e=0.4 = 3.1; Remittances = 0.5
- Trinidad and Tobago: Emigration Loss e=0.3 = 0.7; e=0.4 = 0.9; Remittances = 0.3
- Average for region: Emigration Loss e=0.3 = 1.3; e=0.4 = 1.7; Average remittances 1980–2002 = 5.2

Key aggregate findings:
- On average, official remittances outweigh the aggregate emigration loss for the region.
- Even with high elasticity assumptions, except for Guyana, Suriname, and Trinidad and Tobago, official remittances outweigh emigration loss in all countries.
- Emigration involves redistribution: average gain to workers who stayed behind is 6 percent of GDP and loss to owners of other factors about 7 percent of GDP (Annex Table 2 description).

### Results — emigration loss due to high-skilled migration (Table 5 highlights)
Emigration Loss due to high-skilled migration (percent of GDP) and Average remittances 1980–2002 (selected countries):
- Antigua and Barbuda: Emigration Loss e=0.3 = 2.0; e=0.4 = 2.7; Remittances = 3.0
- Bahamas, The: Emigration Loss e=0.3 = 1.7; e=0.4 = 2.3
- Barbados: Emigration Loss e=0.3 = 1.8; e=0.4 = 2.4; Remittances = 2.3
- Belize: Emigration Loss e=0.3 = 1.9; e=0.4 = 2.6; Remittances = 4.7
- Dominica: Emigration Loss e=0.3 = 1.9; e=0.4 = 2.5; Remittances = 8.4
- Dominican Republic: Emigration Loss e=0.3 = 0.2; e=0.4 = 0.3; Remittances = 5.3
- Grenada: Emigration Loss e=0.3 = 3.3; e=0.4 = 4.3; Remittances = 11.0
- Guyana: Emigration Loss e=0.3 = 3.6; e=0.4 = 4.7; Remittances = 1.9
- Haiti: Emigration Loss e=0.3 = 3.1; e=0.4 = 4.2; Remittances = 10.1
- Jamaica: Emigration Loss e=0.3 = 3.3; e=0.4 = 4.3; Remittances = 7.4
- St. Kitts and Nevis: Emigration Loss e=0.3 = 2.8; e=0.4 = 3.7; Remittances = 6.9
- St. Lucia: Emigration Loss e=0.3 = 2.3; e=0.4 = 3.0; Remittances = 4.0
- St. Vincent and the Grenadines: Emigration Loss e=0.3 = 3.2; e=0.4 = 4.3; Remittances = 7.2
- Suriname: Emigration Loss e=0.3 = 1.0; e=0.4 = 1.4; Remittances = 0.5
- Trinidad and Tobago: Emigration Loss e=0.3 = 2.8; e=0.4 = 3.8; Remittances = 0.3
- Average for region: Emigration Loss e=0.3 = 2.3; e=0.4 = 3.1; Average remittances 1980–2002 = 5.2

Key high-skilled findings:
- Emigration loss due to skilled labor is larger than aggregate emigration loss because skilled emigration rates are higher.
- Remittances outweigh or almost equal the high-skilled emigration loss for the region overall and for most countries, except Guyana, Suriname, and Trinidad and Tobago.
- Losses amplify if positive externalities exist; calculations use gamma = 0.05 and 0.1 as alternative assumptions.

### Emigration loss with external effects (Annex Table 3 highlights)
- Annex Table 3 (gamma = .1, e = 0.4) average values:
  - Average emigration loss (low elasticities): 3.5 (As a percent of GDP)
  - Average emigration loss (high elasticities): 5.6 (As a percent of GDP)
  - Average remittances (Average 1980–2002): 5.2 (As a percent of GDP)
- With high elasticities and external effects, emigration loss outweighs remittances for: Antigua and Barbuda, Barbados, Belize, Guyana, St. Lucia, Suriname, and Trinidad and Tobago.
- Emigration loss almost equals remittances for: Jamaica, St. Kitts and Nevis, and St. Vincent and the Grenadines.
- These magnitudes exceed Borjas (1995) immigration-surplus estimates (0.3–0.7 percent of GDP) because Caribbean emigration rates are large relative to U.S. immigration rates.

### Total losses due to high-skill emigration (Table 6 and Annexes) — country extremes
- Total losses comprise:
  - (i) emigration loss from the simple labor demand-supply framework;
  - (ii) external effects on productivity of those who stayed;
  - (iii) government expenditure on the education of migrants.
- Under high elasticities, losses range:
  - From 2 percent of GDP in the Dominican Republic to 20 percent of GDP in Jamaica.
- On average, total losses outweigh recorded remittances for the Caribbean region and for almost all individual countries (exceptions: Dominican Republic, Haiti, Grenada, and St. Lucia).
- For Grenada and St. Lucia, total losses are almost equal to remittances.
- Even under low elasticity assumptions, losses outweigh remittances for most countries.

### Emigration to the United States — Annex Tables 4 and 5 (selected averages and country highlights)
Annex Table 4 (high elasticities, gamma=0.1, e=0.4) — averages:
- Average Emigration Loss (Annex Table 4, Emigration loss component): 3.1 (As a percent of GDP)
- Average Education Expenditure: 6.1 (As a percent of GDP)
- Average Total Loss (Emigration Loss + Education Expenditure): 8.9 (As a percent of GDP)
- Average remittances (Average 1980–2002): 5.6 (As a percent of GDP)

Annex Table 4 country highlights (Total Loss = Emigration Loss + Education Expenditure; Remittances):
- Antigua and Barbuda: Emigration Loss 4.7; Education Expenditure 3.3; Total Loss 7.0; Remittances 3.0
- Barbados: Emigration Loss 7.4; Education Expenditure 4.3; Total Loss 8.9; Remittances 2.3
- Belize: Emigration Loss 2.2; Education Expenditure 6.0; Total Loss 8.2; Remittances 4.7
- Guyana: Emigration Loss 0.2; Education Expenditure 8.3; Total Loss 12.5; Remittances 1.9
- Jamaica: Emigration Loss 9.1; Education Expenditure 8.0; Total Loss 14.1; Remittances 7.4
- Trinidad and Tobago: Emigration Loss 5.5; Education Expenditure 6.8; Total Loss 10.9; Remittances 0.3
- Average (Annex Table 4): Emigration Loss 3.1; Education Expenditure 6.1; Total Loss 8.9; Remittances 5.6

Annex Table 5 (age at migration ≥ 16; high elasticities, gamma=0.1, e=0.4) — averages:
- Average Emigration Loss: 2.5 (As a percent of GDP)
- Average Education Expenditure: 3.9 (As a percent of GDP)
- Average Total Loss: 6.4 (As a percent of GDP)
- Average remittances (Average 1980–2002): 5.6 (As a percent of GDP)

Annex Table 5 country highlights (age-restricted migrants):
- Antigua and Barbuda: Emigration Loss 3.7; Education Expenditure 3.3; Total Loss 7.0; Remittances 3.0
- Barbados: Emigration Loss 6.0; Education Expenditure 2.4; Total Loss 8.4; Remittances 2.3
- Belize: Emigration Loss 1.8; Education Expenditure 3.9; Total Loss 5.7; Remittances 4.7
- Guyana: Emigration Loss 0.2; Education Expenditure 5.9; Total Loss 6.1; Remittances 1.9
- Jamaica: Emigration Loss 7.1; Education Expenditure 5.6; Total Loss 12.7; Remittances 7.4
- Trinidad and Tobago: Emigration Loss 4.4; Education Expenditure 4.5; Total Loss 8.9; Remittances 0.3
- Average (Annex Table 5): Emigration Loss 2.5; Education Expenditure 3.9; Total Loss 6.4; Remittances 5.6

Key Annex conclusion:
- Annex Table 4 and Annex Table 5 results align with OECD-emigration results (Table 6): on average total losses due to high-skilled emigration to the United States outweigh remittances for the Caribbean region; for many individual countries losses exceed or almost equal remittances.

### Distributional impacts (Annex Table 2 averages)
- Average Loss to Remittances (e=0.3): 4.3 (As a percent of GDP)
- Average Loss to Remittances (e=0.4): 5.7 (As a percent of GDP)
- Average Gain to Workers (e=0.3): 5.6 (As a percent of GDP)
- Average Gain to Workers (e=0.4): 7.4 (As a percent of GDP)
- Average 1980–2002 remittances: 5.2 (As a percent of GDP)

### Policy conclusions and recommendations (Section V)
- Net finding: For most Caribbean countries, total losses due to skilled migration (emigration loss + external effects + public education expenditure) outweigh remittances.
- Two broad policy approaches:
  - (i) Minimize losses by trying to retain the high skilled.
  - (ii) Increase benefits from emigration via a “Diaspora Approach” to:
    - build networks for trade, tourism, and investment promotion;
    - harness diaspora knowledge, skills, and assets;
    - attract higher and more efficient forms of remittances.
- Border tax (Bhagwati-inspired migrant tax):
  - Theoretical possibility analogous to a Tobin tax or progressive income taxation of migrant welfare gains for benefit of those left behind.
  - Practical objections: implementation problems, potential distortionary effects, and need for very large per-capita tax rates given small absolute number of migrants from Caribbean countries.
  - Note: the United States is the only country that taxes individuals on the basis of citizenship rather than place of residence.
- Retention via education reorientation:
  - High emigration reflects both “pull” and “push” factors; reorienting higher education toward regionally demanded skills (services sector skills, e.g., hotel management, specialized banking and finance) could improve retention.
  - Governments subsidize a major portion of education costs; investing in education infrastructure that increases retention may yield higher returns.
- Maximizing benefits from diaspora and remittances:
  - Given difficulty of preventing emigration, policy challenge is maximizing benefits from citizens overseas.
  - Remittances should be an immediate focus because they can affect growth through investment in physical and human capital.
  - Countries need to recognize the importance of remittances and improve recording of remittance data.
- Micro-level evidence cited indicates remittances lead to greater human and physical capital investment.

*Source: _wp0625 - 1. Labor Demand-Supply Model: Welfare Impact of Emigration (PDF chapter).*

### 1. Labor Demand-Supply Model: Welfare Impact of Emigration ...........................................8

### 1. Labor Demand-Supply Model: Welfare Impact of Emigration

### Introduction and motivation
- While a vast literature considers the impact of immigration on destination countries, little work has been done on emigration and its impact on source countries.
- In several source countries, the reduction in the labor force due to emigration to the United States is in the range of 7–27 percent.
- Examples cited:
  - The labor force in Mexico, El Salvador, and Jamaica has been reduced by more than 10 percent due to emigration to the United States between 1970 and 2000.
  - Turkey and Algeria: labor force reduced by about 10 percent due to emigration to Western Europe.
- For comparison, immigrants constitute about 12 percent of the United State labor force (Davis and Weinstein, 2002).
- The Caribbean region has the highest emigration rates in the world; about 12 percent of the labor force in the Caribbean region has migrated to OECD member countries, compared with Central America at 7 percent (Docquier and Marfouk, 2005).

### Emigration composition by skill and regional patterns
- Aggregate emigration rates understate loss of the educated population; the percentage reduction is much larger in higher-schooling categories for most source countries, especially the Caribbean.
- Regional and country-specific tertiary-education reductions due to emigration to OECD member countries:
  - Jamaica: tertiary-educated labor force reduced by 85 percent.
  - Guyana: tertiary-educated labor force reduced by 89 percent.
  - Haiti: aggregate emigration rate about 10 percent, but tertiary-educated labor force reduced by 84 percent.
- A majority of Caribbean countries have lost more than 50 percent of the labor force in the tertiary education segment, and more than 30 percent in the secondary education segment (9–12 years of schooling).
- Almost all Caribbean nations are among the top 20 countries in the world with the highest tertiary-educated migration rates (Docquier and Marfouk, 2005).

### Theoretical framework and components of welfare calculations
- A simple labor demand-supply framework implies that changes in domestic labor supply and wages due to emigration lead to a net welfare reduction (“emigration loss”) for producers and workers who stay behind.
  - Emigration loss arises from movement of inframarginal workers (those paid less than their marginal product).
  - Concept analogous to the “immigration surplus” in migration literature (MacDougall (1960) context for capital flows; Borjas (1995) for immigration).
- Additional cost components included in the analysis:
  - Positive externalities from high-skilled workers (knowledge transfer, improved monitoring/motivation): if present, the loss due to their migration will be higher than the simple emigration loss. The paper estimates an augmented emigration loss that accounts for these externalities.
  - Government expenditure on educating migrants: many Caribbean governments (Barbados, Trinidad and Tobago, Jamaica) spend much more per capita on tertiary education than on primary and secondary; these education subsidies are accounted for in welfare cost calculations.
- Benefits included in the analysis:
  - Transfers from abroad (remittances) are a major measurable benefit.
  - The Caribbean ranks among the top 30 countries in the world with the highest remittances as a percent of GDP; the Caribbean is the world’s largest recipient of remittances as a share of GDP.
  - Remittances constituted about 13 percent of the region’s GDP in 2002.

### Data sources and novelty
- Uses detailed emigration-rate dataset compiled by Docquier and Marfouk (2005), constructed using census data from a number of OECD member countries.
- Emigration rate to the United States is estimated separately using U.S. Census data.
- The paper is the first to quantify the welfare impact of skilled emigration on source countries while explicitly taking into account external effects and costs of education subsidies.
- The paper brings together three strands of literature: immigration welfare calculations (e.g., Borjas (1995)), recent emigration-impact studies for large source countries, and literature on Caribbean migration and remittances.

### Main empirical result and quantitative comparisons
- The main result: the total losses due to skilled migration (which include the “emigration loss,” externality effects, and government expenditure on educating the migrants) outweigh the recorded remittances for the Caribbean region on average, and for almost all individual Caribbean countries.
- Caveat: measurement of remittances is subject to data deficiencies; measured remittances do not include transfers through informal channels (carried by hand or by friends or family) or in-kind remittances of jewelry and consumer goods.

### Additional considerations and limitations
- Calculations are not sufficient to conclude overall welfare impact definitively; migration has many other costs and benefits outside the paper’s scope:
  - Benefits: migrant networks can increase trade and investment; emigration can induce human capital formation by raising expected returns from education.
  - Costs: fiscal loss from foregone tax revenue that would have accrued if migrants had stayed.
- The rest of the paper is organized as follows: Section II presents the theoretical framework for the welfare calculations, Section III discusses the data and the evidence on emigration from the Caribbean, and Section IV presents the results from the welfare calculations.

*Source: _wp0625 - 1. Labor Demand-Supply Model: Welfare Impact of Emigration (PDF chapter).*

### Section V concludes.

### _wp0625 - Section V concludes.

### Theory: framework and key formulas
- Welfare is measured by GDP accruing to those who have stayed behind in the source country.
- Production function: Q = F(K,L).
- Emigration of magnitude M reduces labor force from (N+M) to N, increasing wage from w0 to w1. The “emigration loss” is the triangle abc in Figure 1 and arises because the cost of employing inframarginal workers who migrate is less than the value of their marginal product.
- Emigration loss (triangle B in Figure 1) (equation (2)):
  - Emigration loss = (1/2) s e m^2
- Gain to the workers who have stayed behind (equation (3)):
  - Gain = (1 − m) s e m
- Loss to the owners of the other factor (equation (4)):
  - Loss = (1 − m) s e (m/2) [expressed in the source as ) 2 1 1(msem− — preserved as structure in original text]

### Measurement of external effects (high-skill externalities)
- If skilled labor is complementary to other factors, production is expressed (equation (5)) as:
  - q = f(l_s, l_u, S_L)^γ  (preserved as γ Sus Lllfq),(= in source)
- Emigration of skilled workers reduces S_L and shifts the marginal product curve inward; emigration loss is larger when external effects exist.
- Emigration loss without external effects (equation (6)):
  - Emigration loss = (1/2) s_s e_s m_s^2
- Emigration loss including external effects (equation (7), preserved in source form):
  - Emigration loss with external effects = )1( 1 )1( 12 1 2 su su ss ss sss ms ms ms ms mes− − +− − + γ γ γ γ
- Two values for the elasticity of marginal product with respect to the aggregate stock of skilled labor (gamma) are used: 0.05 and 0.1 (as in Borjas (1995)).

### Education cost of skilled migrants
- Public expenditure on education of emigrants is an important cost to source countries; for tertiary-educated migrants in developing countries like Barbados, Jamaica, and Trinidad and Tobago this cost is particularly high (UNESCO, 2004).
- The public subsidy on education reflects the gap between private and social costs; if emigrants leave, the subsidy on their education can be treated as a social cost (opportunity cost in foregone expenditure or higher tax rates).
- Other unmodeled costs include fiscal loss from foregone tax revenue.

### Benefits of emigration
- The most immediate quantifiable benefit is remittances.
- Latin America and the Caribbean is the largest recipient of remittances and has the fastest growth in receipts; in 2003 remittance flows exceeded combined flows of FDI and ODA to the region (Terry, 2004).
- Other possible benefits:
  - Network effects in trade and FDI (Rauch and Trinidade (2002)).
  - Favorable effect on human capital formation: emigration biased toward high-skilled can raise relative wages and returns to higher education (Beine et. al., 2003).

### Data and evidence: measurement and magnitudes
- Emigration rates are measured using migrants counted in recipient-country censuses (Docquier and Marfouk (2005); U.S. Census).
- Emigration rate to OECD member countries defined as fraction of labor force having migrated (equation (8) in source).
- Emigration rate by schooling S defined as fraction of labor force in schooling S having migrated (equation (9) in source).

Key empirical magnitudes reported:
- About 12 percent of the labor force from the Caribbean region has migrated to OECD member countries over the period 1965–2000.
- Central America lost about 7 percent of its labor force to OECD member countries (for comparison).
- The tertiary-educated migration rate from the Caribbean to OECD member countries: 70 percent (source text: "1965–2000, (By Level of Schooling) PrimarySecondaryTertiary" and specific commentary).
- Emigration to the United States (by schooling): about 60 percent of the tertiary educated labor force has migrated from the Caribbean to the United States (Table 2 summary).
- Adjusted emigration rates (restricting to migrants who emigrated at age 16 years or more) reduce tertiary-category rates relative to unadjusted, but "the highly-educated labor force in the region has been reduced by 58 percent due to emigration to the United States, even after making the adjustment."
- Worker remittances definition: monetary transfers sent to source countries by workers who have been abroad for more than one year (recorded under “current transfers”).
- In 2002 total remittances (worker remittances + compensation of employees + migrant transfers) constituted about 13 percent of the Caribbean region’s GDP.
- Comparative 2002 shares for the region (exact figures preserved from source):
  - Remittances: 13 percent of GDP (total remittances, 2002)
  - FDI: 6 percent of GDP (2002)
  - ODA: 1 percent of GDP (2002)
- Remittances have risen from 3 percent to 13 percent of GDP between 1990 and 2002; ODA declined from 4 percent to 1 percent; FDI declined from 9 percent in 1999 to about 6 percent in 2002.
- The Caribbean is the largest remittance recipient region in proportion to GDP (Figure 7).

Public expenditure on education:
- Table 3 provides government expenditure on education per student (average 1999–2002) for Caribbean countries; for Barbados, Jamaica, and Trinidad and Tobago, expenditure on tertiary education is much larger relative to primary and secondary. (Table entries are presented in the source.)

### Results: emigration loss calculations and comparisons with remittances
Assumptions and elasticities used:
- Labor’s share of national income assumed to be 70 percent (s = 0.7).
- Two elasticity of factor price of labor values used: e = 0.3 and e = 0.4 (motivated by Hamermesh (1993) and Mishra (forthcoming)).
- For skilled-emigration calculations, skilled labor share of GDP assumed to be 0.3 (from source note: "assumed skilled labor share of GDP is 0.3 ...  overall labor share in GDP *0.4 = 0.7*0.4=0.28", preserved).

Aggregate emigration loss (Table 4: Emigration Loss and Remittances — values are Emigration Loss as percent of GDP for e=0.3 and e=0.4, and Average remittances 1980–2002):
- Antigua and Barbuda: Emigration Loss e=0.3 = 1.5; e=0.4 = 2.0; Remittances = 3.0
- Bahamas, The: Emigration Loss e=0.3 = 0.2; e=0.4 = 0.2; Remittances = n.a.
- Barbados: Emigration Loss e=0.3 = 1.1; e=0.4 = 1.5; Remittances = 2.3
- Belize: Emigration Loss e=0.3 = 0.9; e=0.4 = 1.2; Remittances = 4.7
- Dominica: Emigration Loss e=0.3 = 1.7; e=0.4 = 2.3; Remittances = 8.4
- Dominican Republic: Emigration Loss e=0.3 = 0.2; e=0.4 = 0.2; Remittances = 5.3
- Grenada: Emigration Loss e=0.3 = 3.0; e=0.4 = 4.0; Remittances = 11.0
- Guyana: Emigration Loss e=0.3 = 1.9; e=0.4 = 2.5; Remittances = 1.9
- Haiti: Emigration Loss e=0.3 = 0.1; e=0.4 = 0.2; Remittances = 10.1
- Jamaica: Emigration Loss e=0.3 = 1.3; e=0.4 = 1.7; Remittances = 7.4
- St. Kitts and Nevis: Emigration Loss e=0.3 = 2.6; e=0.4 = 3.4; Remittances = 6.9
- St. Lucia: Emigration Loss e=0.3 = 0.6; e=0.4 = 0.7; Remittances = 4.0
- St. Vincent and the Grenadines: Emigration Loss e=0.3 = 1.4; e=0.4 = 1.9; Remittances = 7.2
- Suriname: Emigration Loss e=0.3 = 2.4; e=0.4 = 3.1; Remittances = 0.5
- Trinidad and Tobago: Emigration Loss e=0.3 = 0.7; e=0.4 = 0.9; Remittances = 0.3
- Average for region: Emigration Loss e=0.3 = 1.3; e=0.4 = 1.7; Average remittances 1980–2002 = 5.2

Key findings from Table 4 (preserved from source):
- On average, official remittances outweigh the emigration loss for the region.
- Even under the assumption of high elasticity, except for Guyana, Suriname and Trinidad and Tobago, official remittances outweigh emigration loss in all countries.
- Emigration involves redistribution: on average the gain to the workers who have stayed behind is 6 percent of GDP and the loss to owners of other factors is about 7 percent of GDP (Annex Table 2, as described).

Emigration loss due to high-skilled migration (Table 5: Emigration Loss Due to High-Skilled Migration — Emigration Loss as percent of GDP for e=0.3 and e=0.4, and Average remittances 1980–2002):
- Antigua and Barbuda: Emigration Loss e=0.3 = 2.0; e=0.4 = 2.7; Remittances = 3.0
- Bahamas, The: Emigration Loss e=0.3 = 1.7; e=0.4 = 2.3
- Barbados: Emigration Loss e=0.3 = 1.8; e=0.4 = 2.4; Remittances = 2.3
- Belize: Emigration Loss e=0.3 = 1.9; e=0.4 = 2.6; Remittances = 4.7
- Dominica: Emigration Loss e=0.3 = 1.9; e=0.4 = 2.5; Remittances = 8.4
- Dominican Republic: Emigration Loss e=0.3 = 0.2; e=0.4 = 0.3; Remittances = 5.3
- Grenada: Emigration Loss e=0.3 = 3.3; e=0.4 = 4.3; Remittances = 11.0
- Guyana: Emigration Loss e=0.3 = 3.6; e=0.4 = 4.7; Remittances = 1.9
- Haiti: Emigration Loss e=0.3 = 3.1; e=0.4 = 4.2; Remittances = 10.1
- Jamaica: Emigration Loss e=0.3 = 3.3; e=0.4 = 4.3; Remittances = 7.4
- St. Kitts and Nevis: Emigration Loss e=0.3 = 2.8; e=0.4 = 3.7; Remittances = 6.9
- St. Lucia: Emigration Loss e=0.3 = 2.3; e=0.4 = 3.0; Remittances = 4.0
- St. Vincent and the Grenadines: Emigration Loss e=0.3 = 3.2; e=0.4 = 4.3; Remittances = 7.2
- Suriname: Emigration Loss e=0.3 = 1.0; e=0.4 = 1.4; Remittances = 0.5
- Trinidad and Tobago: Emigration Loss e=0.3 = 2.8; e=0.4 = 3.8; Remittances = 0.3
- Average for region: Emigration Loss e=0.3 = 2.3; e=0.4 = 3.1; Average remittances 1980–2002 = 5.2

Key findings on high-skilled migration (preserved language and values):
- Emigration loss due to emigration of skilled labor, ceteris paribus, is significant and larger than aggregate emigration loss because skilled emigration rates are higher.
- Still, remittances outweigh or almost equal the emigration loss due to high-skilled migration for the region as a whole and for most countries, except Guyana, Suriname, and Trinidad and Tobago.
- The loss is amplified if emigrants confer positive externalities on nonemigrants; calculations use gamma = 0.05 and 0.1 as alternative assumptions.

*Source: _wp0625 - Section V concludes.*

### Annex Table 3 shows the estimates of emigration loss due to high-skilled migration in the

### _wp0625 - Annex Table 3 shows the estimates of emigration loss due to high-skilled migration in the

### Emigration loss with external effects — key findings
- Annex Table 3 (high elasticities, gamma = .1, e = 0.4) shows emigration loss with external effects for Caribbean countries; average values reported:
  - Average emigration loss (low elasticities): 3.5 (As a percent of GDP)
  - Average emigration loss (high elasticities): 5.6 (As a percent of GDP)
  - Average remittances (Average 1980–2002): 5.2 (As a percent of GDP)
- For high values of the elasticities, and in the presence of external effects, emigration loss outweighs remittances for: Antigua and Barbuda, Barbados, Belize, Guyana, St. Lucia, Suriname, and Trinidad and Tobago.
- Emigration loss almost equals remittances for: Jamaica, St. Kitts and Nevis, and St. Vincent and the Grenadines.
- The magnitudes of these emigration losses are much higher than the estimates of immigration surplus in the presence of external effects in Borjas (1995), which range between 0.3–0.7 percent of GDP.
- The larger effect is attributed to emigration rates from the Caribbean being greater relative to the immigration rate into the United States.

### Total losses due to high-skill emigration (Table 6) — summary and country extremes
- Total losses comprise:
  - (i) emigration loss from the simple labor demand supply framework;
  - (ii) external effects (impact on productivity of those who stayed behind);
  - (iii) government expenditure on the education of migrants.
- Results shown in Table 6 are under the assumption of high elasticities.
- Central observations from Table 6:
  - The total losses due to high-skill emigration are significant for most countries.
  - The losses range from 2 percent of GDP in the Dominican Republic to 20 percent of GDP in Jamaica.
  - On average, the losses outweigh the official recorded remittances for the Caribbean region and for almost all the individual countries (exceptions: Dominican Republic, Haiti, Grenada, and St. Lucia).
  - For Grenada and St. Lucia, total losses are almost equal to remittances.
  - Even under the assumption of low elasticities (not shown), the losses outweigh remittances for most countries.

### Distributional impacts and remittances (Annex Table 2) — selected averages
- Annex Table 2 average values:
  - Average Loss to Remittances (e=0.3): 4.3 (As a percent of GDP)
  - Average Loss to Remittances (e=0.4): 5.7 (As a percent of GDP)
  - Average Gain to Workers (e=0.3): 5.6 (As a percent of GDP)
  - Average Gain to Workers (e=0.4): 7.4 (As a percent of GDP)
  - Average 1980–2002 remittances: 5.2 (As a percent of GDP)

### Emigration to the United States — welfare and loss estimates (Annex Tables 4 and 5)
- Because an overwhelming majority of Caribbean migrants come to the United States, the authors calculate losses restricted to emigration to the United States and, separately, to migrants age 16 or older at migration.
- Annex Table 4 (high elasticities, gamma=0.1, e=0.4) — Total Losses Due to High-Skilled Emigration to the United States vs Remittances (selected average totals):
  - Average Emigration Loss (Annex Table 4, Emigration loss component): 2.5 (As a percent of GDP)
  - Average Education Expenditure: 3.9 (As a percent of GDP)
  - Average Total Loss (Emigration Loss + Education Expenditure): 6.4 (As a percent of GDP)
  - Average remittances (Average 1980–2002): 5.6 (As a percent of GDP)
- Annex Table 4 country highlights (Total Loss = Emigration Loss + Education Expenditure; Remittances listed):
  - Antigua and Barbuda: Emigration Loss 4.7; Education Expenditure 3.3; Total Loss 7.0; Remittances 3.0
  - Bahamas, The: Emigration Loss 1.5; Education Expenditure 5.6; Total Loss 5.3; Remittances n.a.
  - Barbados: Emigration Loss 7.4; Education Expenditure 4.3; Total Loss 8.9; Remittances 2.3
  - Belize: Emigration Loss 2.2; Education Expenditure 6.0; Total Loss 8.2; Remittances 4.7
  - Dominica: Emigration Loss 4.2; Education Expenditure 4.6; Total Loss 8.4; Remittances 8.4
  - Dominican Republic: Emigration Loss 0.2; Education Expenditure 1.5; Total Loss 1.9; Remittances 5.3
  - Grenada: Emigration Loss 3.1; Education Expenditure 7.7; Total Loss 9.6; Remittances 11.0
  - Guyana: Emigration Loss 0.2; Education Expenditure 8.3; Total Loss 12.5; Remittances 1.9
  - Haiti: Emigration Loss 0.4; Education Expenditure 8.2; Total Loss 9.0; Remittances 10.1
  - Jamaica: Emigration Loss 9.1; Education Expenditure 8.0; Total Loss 14.1; Remittances 7.4
  - St. Kitts and Nevis: Emigration Loss 1.9; Education Expenditure 6.4; Total Loss 13.5; Remittances 6.9
  - St. Lucia: Emigration Loss 0.4; Education Expenditure 5.0; Total Loss 3.8; Remittances 4.0
  - St. Vincent and the Grenadines: Emigration Loss 3.2; Education Expenditure 7.2; Total Loss 8.4; Remittances 7.2
  - Trinidad and Tobago: Emigration Loss 5.5; Education Expenditure 6.8; Total Loss 10.9; Remittances 0.3
  - Average (Annex Table 4): Emigration Loss 3.1; Education Expenditure 6.1; Total Loss 8.9; Remittances 5.6
- Annex Table 5 (age at migration restricted to 16 or more years; high elasticities, gamma=0.1, e=0.4) — summary:
  - Average Emigration Loss: 2.5 (As a percent of GDP)
  - Average Education Expenditure: 3.9 (As a percent of GDP)
  - Average Total Loss: 6.4 (As a percent of GDP)
  - Average remittances (Average 1980–2002): 5.6 (As a percent of GDP)
- Annex Table 5 country highlights (age-restricted migrants):
  - Antigua and Barbuda: Emigration Loss 3.7; Education Expenditure 3.3; Total Loss 7.0; Remittances 3.0
  - Bahamas, The: Emigration Loss 1.0; Education Expenditure 3.4; Total Loss 4.4; Remittances n.a.
  - Barbados: Emigration Loss 6.0; Education Expenditure 2.4; Total Loss 8.4; Remittances 2.3
  - Belize: Emigration Loss 1.8; Education Expenditure 3.9; Total Loss 5.7; Remittances 4.7
  - Dominica: Emigration Loss 2.9; Education Expenditure 2.6; Total Loss 5.5; Remittances 8.4
  - Dominican Republic: Emigration Loss 0.2; Education Expenditure 0.7; Total Loss 0.9; Remittances 5.3
  - Grenada: Emigration Loss 2.5; Education Expenditure 5.3; Total Loss 7.8; Remittances 11.0
  - Guyana: Emigration Loss 0.2; Education Expenditure 5.9; Total Loss 6.1; Remittances 1.9
  - Haiti: Emigration Loss 0.3; Education Expenditure 5.6; Total Loss 5.9; Remittances 10.1
  - Jamaica: Emigration Loss 7.1; Education Expenditure 5.6; Total Loss 12.7; Remittances 7.4
  - St. Kitts and Nevis: Emigration Loss 1.4; Education Expenditure 4.1; Total Loss 5.5; Remittances 6.9
  - St. Lucia: Emigration Loss 0.3; Education Expenditure 2.8; Total Loss 3.1; Remittances 4.0
  - St. Vincent and the Grenadines: Emigration Loss 2.4; Education Expenditure 4.6; Total Loss 7.1; Remittances 7.2
  - Trinidad and Tobago: Emigration Loss 4.4; Education Expenditure 4.5; Total Loss 8.9; Remittances 0.3
  - Average (Annex Table 5): Emigration Loss 2.5; Education Expenditure 3.9; Total Loss 6.4; Remittances 5.6
- Annex Table 4 and Annex Table 5 results are similar to the broader OECD-emigration results (Table 6): on average, total losses due to high-skilled emigration outweigh remittances for the Caribbean region; for many individual countries losses exceed or almost equal remittances.

### Policy conclusions and recommendations (Section V)
- Net finding: For most Caribbean countries, total losses due to skilled migration (emigration loss + external effects + public education expenditure) outweigh remittances.
- Two possible policy approaches:
  - (i) Minimize losses by trying to retain the high skilled.
  - (ii) Increase the benefits of emigration by adopting a “Diaspora Approach” to:
    - build networks for trade, tourism, and investment promotion;
    - harness diaspora knowledge, skills, and assets;
    - attract higher and more efficient forms of remittances.
- On border taxes (Bhagwati-inspired migrant tax):
  - A border tax on migrants is noted as a theoretical possibility (Bhagwati (1976)), analogous to a Tobin tax or progressive income taxation of migrant welfare gains for the benefit of those left behind.
  - Practical objections: implementation problems, potential distortionary effects, and need for very large per-capita tax rates given the small absolute number of migrants from Caribbean countries.
  - Note: the United States is the only country that taxes individuals on the basis of citizenship rather than place of residence.
- Retention via education reorientation:
  - High emigration rates reflect both “pull” (higher wages abroad) and “push” (limited opportunities for similarly educated people in small domestic markets).
  - Reorient higher education toward skills in demand within the region—particularly services sector skills—could improve retention (examples: hotel management institutes, specialized banking and finance institutes).
  - Governments cover a major portion of education costs via subsidies; investing in education infrastructure that increases retention may yield higher returns.
- Maximizing benefits from diaspora and remittances:
  - Given difficulty of preventing emigration, the policy challenge is maximizing benefits from citizens living and working overseas.
  - Remittances should be an immediate focus because they can affect growth through investment in physical and human capital.
  - Countries need to recognize the importance of remittances and improve recording of remittance data.
- Micro-level evidence cited (studies mentioned in the source) suggests remittances lead to greater human and physical capital investment.

*Source: Authors' calculations and text from the provided IMF working paper content.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2006/_wp0625.pdf_