Interprovincial Migration and Human Capital Formation in China*

• DOI: http://doi.org/10.1111/asej.12089
• Date: 01 June 2016
• Author: Yukari Suzuki,Yui Suzuki
• Published date: 01 June 2016

Interprovincial Migration and Human Capital

Formation in China*

Yui Suzuki and Yukari Suzuki

Received 4 April 2013; accepted 12 April 2015

Weexamine how the rising interprovincial migration of individuals with diverse ed-

ucational backgrounds affected human capital formation in China in the 1990s. We

find that gross outflow migration of those with higher and lowerlevels of education,

respectively, has human capital incentive and disincentive effects. Our estimates

suggest that the incentive effect eclipses the disincentive effect in general; however,

a surge of migration, particularly among less educated groups, implies more of a

disincentive effect in China in the 1990s. We also find that changes in the relative

labor supply resulting from net outflow migration mitigate a direct brain drain by

both encouraging and discouraging school enrolments.

Keywords: brain drain, China, human capital, migration, schooling.

JEL classification codes: J24, J61, O15.

doi: 10.1111/asej.12089

I. Introduction

There has been concern that the emigration of high-skilled workers from develop-

ing countries to developed countries would have adverse effects on the developing

countries and widen North–South inequality (Beine et al., 2001). Rich countries

hence become richer at the expense of poor countries who suffer as a result of a

reduction in human capital, or a ‘brain drain’. Since the 1970s, institutional set-

tings such as domestic labor market rigidity and fiscal and technological external-

ities have been studied to explore the negative welfare consequences of the brain

drain in developing countries (e.g. Bhagwati and Hamada, 1974; McCulloch and

Yellen, 1977). Later in the 1990s, further studies employing endogenous growth

frameworks reached more or less the same conclusion with regards to the negative

effect of the migration of highly skilled workers from developing countries (e.g.

Miyagiwa, 1991; Haque and Kim, 1995). These arguments start with a self-

*Yui Suzuki (corresponding author): Facultyof Economics, Finance Department, Musashi Univer-

sity, 1-26-1 Toyotama-kami Nerima-ku, Tokyo 176-8534 Japan. Email: yui-szk@cc.musashi.ac.jp.

Yukari Suzuki: Department of Economics, University of Michigan, 611 Tappan St. Ann Arbor, MI

48109-1220 United States. Email: yukaris@umich.edu. The authors are grateful to Charles Brown, Al-

bert Park, Jan Svejnar and anonymous referees for their guidance and helpful comments. Wealso thank

the Institute of Population and Labor Economics, Chinese Academy of Social Sciences for providing

us with the aggregated migration flow data tabulated based on the census data.

© 2016 East Asian Economic Association and John Wiley & Sons Australia, Ltd

Asian Economic Journal 2016, Vol.30 No. 2, 171–195 171

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evident truth: migration inevitably alters the geographical allocation of human

capital. In this context, destination economies are the winner, gaining human cap-

ital embodied in migrants, and source economies are the loser, when, as is often

the case, people drained from the economy are highly educated.

However,since the late 1990s, a series of papers have challenged the pessimistic

brain drain argument, by suggesting that the emigration of high-skilled workers

from developing countries can be beneficial for the source countries. This claim

is supported by an important point neglected in the brain drain argument: a

country’s pre-migration human capital stock is endogenous to the prospect and re-

alization of migration. Some studies assert that there may be beneficial impacts of

international migration on source countries: that there is a ‘brain gain’, through un-

certainty in migration (Mountford, 1997; Stark et al., 1998; Beine et al., 2001,

2008), migrants’remittances (Edwards and Ureta, 2003; Hanson and Woodruff,

2003; Borraz, 2005; Yang, 2008), return migration (Borjas and Bratsberg, 1996;

Stark et al., 1997) and migrants’networks (Kanbur and Rapoport, 2005). These

findings suggest that source countries can alleviate the direct loss due to brain drain

by increasing human capital investment through a variety of channels.

1

These new insights into international migration highlight the possibility that do-

mestic migration influences the total amount of human capital available at the na-

tional level as well as impacting the distribution of human capital across regions. If

migration does not affect the incentive for new human capital formation, migration

within a national territory, unlike the international case, would merely alter the re-

gional distribution of human capital in a country. However, this is not true when we

take into account the brain gain: internal migration alters new human capital in-

vestment and, thus, can change the overallhuman capital stock at the national level.

Because there are more changes of residence through domestic migration, domes-

tic migration can have a greater influence on new human capital formation.

The present study examines how the internal migration of individuals with di-

verse educational backgrounds affects human capital formation in source econo-

mies and explores the implications for the development of regional and national

economies. According to Beine et al. (2001) the prospects of migration foster in-

vestments in education when international migrants are positively selected based

on education and skills; we apply this conjecture to domestic migration. A better

chance of migration for the educated, who seek higher returns to their human cap-

ital in the destination, provides the younger generation with greater incentive to

enroll into schools in the source economy. Following Docquier and Rapoport

(2004), we refer to this beneficial effect as the human capital incentive effect.

However, we must be mindful of one point for our purpose: domestic migration

differs from international migration, discussed in Beine et al. (2001), in that those

with higher skill levels and education do not necessarily comprise the majority of

migrants. A higher prospect of migration for the less educated can have an

1 Docquier and Rapoport (2004, 2012) review literature on the brain drain and brain gain through

international migration, including recent empirical works.

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© 2016 East Asian Economic Association and John Wiley & Sons Australia, Ltd