Forced Migration – The Human Capital Mobility and Brain Drain–Brain Gain Paradox

Forced migration can be economically damaging. Countries from which individuals have emigrated can lose the most educated and skilled talent—engineers, doctors, and teachers—who are key resources needed to rebuild their country after displacement. At the same time, the countries to which these emigrants go will see their arrival as a financial benefit due to their education and skill level. The interaction between these two economic outputs is one of the central tenets of the theory of human capital mobility, and the best illustration of this intersection can be found in the current situation in Ukraine and the Baltic states.

In most cases, human capital is different from other forms of economic assets. Human capital follows the movement of a person. That means that if a person leaves their home country to find employment in another country due to political instability, war or reduced wages, that individual will take their skills, education and productive capacity with them. Therefore, when an individual moves to another country, the economic consequences of the move will be felt by both the country of origin as well as the new receiving country. Economists refer to this as the brain drain–brain gain paradox.

The brain drain and brain gain paradox raises a difficult question: what is the net economic impact of migration? Is it positive (value creation), negative (value destruction) or neutral (value reallocation between countries)?

During the most recent period of conflict in Ukraine caused by the full-scale invasion that began on 24 February 2022, Ukraine has experienced one of the fastest outflows of human capital of any European country since World War II. By November 2024, the UNHCR had recorded over 6.2 million Ukrainian refugees across Europe. To assess the degree of economic impact of this human capital outflow from Ukraine we need to examine not only the number of refugees but also the demographic composition.

As provided by the OECD in 2023, nearly two-thirds of these displaced Ukrainians were highly educated (at least 3 years of tertiary education), including over 40% having earned master's degrees or above. This level of educational attainment far exceeds that of both Ukraine's general population and the host nations of many refugees. Based on the data provided by the World Bank, the Ukrainian economy contracted approximately 29% in 2022, and there are labour shortages in many sectors of the economy that cannot be easily moved offshore (for example, the construction, medical and engineering industries). The distance between the areas with skilled workers that can aid in rebuilding the economy and where these workers currently reside (Warsaw, Berlin, and Tallinn) contributes to the recovery gap that exists in economic recovery today.

The Baltic Gain and its Limits

In Estonia and Latvia, Ukrainian skilled migrants have come to these countries at a time when demographic pressures on Estonian and Latvian populations are increasing. In 2022, Estonia had 2% more people than it did one year before, which is a rare occurrence during Estonia's demographic crisis, primarily due to migration (due to the influx of migrants from Ukraine). It has been reported by Statistics Estonia that 75% of new immigrants in 2022 came from Ukraine. In Latvia, the total number of Ukrainians who immigrated to Latvia in 2022 caused the country to have a positive net migration balance for the first time since 1990 even though they are still seeing their natural populations decrease. The economic benefits of immigrants will often greatly depend on their ability to integrate into the formal labour market of the receiving economy, which will largely base this on their legal status, ability to access language services, and their ability to obtain recognition of their foreign education. Therefore, immigration law can be viewed by the business community as being an "economic tool" and not simply a "burden". Bimaris, for instance, is a business that works with clients from both Ukraine and the Baltic Countries and therefore sits at the intersection of where an individual's human capital can either make its way into the formal economy of the receiving country or be impeded or stalled in a legal limbo. According to the research by economists Harry Johnson and Frédéric Docquier on the potential advantages to the migrant's home country and their receiving country, it is possible for both the countries of migrants to accumulate the benefits from transfers of remittances from emigrated individuals.

Movement of human capital can also create a bridge of skills to both trade and invest capital in one's home country. For the Ukrainian diaspora in the Baltic countries, over time, such movements may create opportunity for trade, investment, and transfer of institutional knowledge. For this to occur, the legal frameworks on both sides of the border must be amenable to facilitating movements of skilled workers between Ukraine and the receiving countries. Economically, human capital is not limited to a zero-sum situation. Decisions being made (in immigration offices, law firms, and policy chambers) throughout Eastern Europe are critical in determining whether Ukraine's current losses will turn into future gains for the economy in Ukraine.