Indonesia | Economics

Tuesday, July 20, 2004

Brain-drain or capacity building?

The high demand of international institutions for local researchers is draining local, Indonesian research institutions. But is this a bad thing?

Earlier today, I had lunch with a friend, a fellow Indonesian economist working for the World Bank. We discussed a phenomenon currently happening in Indonesia’s market for researchers. Apparently, the growing presence of international institutions in need of local research capabilities is taking its toll.

For instance, good economists are increasingly hard to find. Just look at the place I am currently at: CSIS used to be a haven for young economists. At one point, we have more than 10 economists, almost half have PhDs.

As nature takes its course – with researchers moving on to take their Masters and/or PhDs or to, well, international institutions – we found that it was very difficult to find good economists. Our six-month hunt for them was in vain: either the applicants did not fit our needs, or we couldn’t fulfill their (financial) needs.

As we walk back towards the Bank office at the Jakarta Stock Exchange building after lunch, we griped that these international institutions were, in economics term, ‘crowding researchers out’ of local institutions. With salaries higher than those offered by local institutions, international institutions drained local institutions of many good researchers. And this, clearly, is a bad thing – or is it?

Well, on the one hand, I know for a fact that it made our search for economists more difficult. Why? Because now, research institutions must increase their offers – salaries that used to be adequate to keep certain quality economists are no longer adequate.

But hold on – doesn’t this mean that, as in our case, economists are getting higher pays? Or, in other words, the overall productivity of economists – commonly measured as wage per economist – actually increases because of the demands of these international institutions. And surely, increased productivity is a good thing.

Besides, if the salaries of economists are increasing, this would certainly create incentives to become economists – assuming there is perfect information, i.e., that students deciding between taking management, accounting or ‘development studies’ are informed that taking the latter would provide decent livelihoods such that the best of students would flock into development studies.

These new economics students would increase the supply of economists, which will be beneficial not only to balance the excess demand of economists, but also to create a community of economic researchers whose output would have spillover effects. Moreover, the competition to become the crème de la crème among Indonesian economists will intensify and, again, surely, this certainly isn’t a bad thing.

So, is this trend of brain-drain something we should be worried about? Well, as part of a local research institute in need of economists, I am. But, as an economist, it's something to be welcomed - something that is good for Indonesia and Indonesian economists. As for locals' needs of economists, it's perhaps the time for local institutes to think of ways to be more efficient and attractive to the best and brightest of Indonesian economists.


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