International Journal of Foreign Trade and International Business
2019, Vol. 1, Issue 2, Part A
The impact of trade openness and FDI on brain drain in developing countries
Namra tul ain
Purpose – The objective of this paper is to explore the impacts of trade openness and the inflows of FDI on brain drain in the case of developing world. This is a new strand as existing literature has focused on the relationship between trade openness, FDI and economic growth.
Design/methodology/approach - We utilized panel data of 56 developing countries of origin and 20 OECD host countries for 1985-2010 time period. Panel econometric techniques are utilized to check cointegration among the variables. Fully modified ordinary least squares and dynamic ordinary least squares methods are used to estimate coefficients of the variables. Similarly, pairwise granger causality test is carried out to check the direction of relationship.
Findings - Using panel cointegration techniques, the study reveals that both trade openness and FDI matters for brain drain. The results indicated that openness of trade has a positive and FDI has a negative impact on brain drain problem. Further, the empirical results revealed one way causality from FDI to trade openness and from brain drain to trade openness. Policy makers of the developing world are expected to be benefited from the results of the study and hence they would in turn be in a better position to make appropriate policies regarding both FDI and trade openness to overcome the problem of brain drain.
Originality/value – The findings of the paper are original as the available literature ignored the role of trade openness and FDI regarding the issue of brain drain.