The Brain Drain of Entrepreneurial Talent

Mary BoardmanFiona SussanLouis Daily

University of PhoenixCenter for Global Business Research

Introduction-Allocation of Entrepreneurial Talent

• Entrepreneurs have profit motives, means to the end are less important

• Literature primarily comes from Baumol (1990), Murphy, et al. (1991), Sobel (2008), Desai (2008)

• Incentives matter within a society:• Entrepreuneurship can be productive,

unproductive, or destructive• Entrepreneurially talented individuals can

choose to engage (or not engage) in entrepreneurship

• What about migration of talent?

Migration of Entrepreneurial Talent

• Allocation of Talent literature assumes entrepreneurial talent is constant within each country

• Talent clusters in the industries and activities where payoffs are highest

• We challenge the assumption of constant levels of entrepreneurial talent within country

• Do the entrepreneurially talented migrate, clustering geographically where payoffs are highest?

Hypotheses

• Talent migrates away from:• Communist

regime• Political instability• Conflict

• Talent migrates toward:• Larger markets• Higher growth• Richer countries• More favorable

institutions

Data Sources

• Forbes Billionaires list 2008• Approximately 1200 total, from

that:• Wealth must be self-made• Must have made a decision to move

internationally• Must have conducted entrepreneurial

activities in new country

Data Sources

• Other Sources:• CIA World Factbook

• Used to assess conflict, political instability, and/or communism

• UN Development Data• Used to assess growth and GDPPC

• Supplemental Sources• Used to complement Forbes bio

data

Analysis

• Data too limited for rigorous econometric testing• Insignificant regression results

• Identified countries with brain gain, drain and circulation

• Net gain and/or loss of at least 6 future billionaire entrepreneurs

Major Talent Gainers/Losers

• U.S.: +21 (Gained 32, Lost 11)• U.K.: +4 (Gained 9, Lost 5)• Russia: +4 (Gained 7, Lost 3)• China: +4 (Gained 8, Lost 4)• Hong Kong: 0 (Gained 7, Lost 7)• Canada: -1 (Gained 5, Lost 6)• India: -4 (Gained 2, Lost 6)• Israel: -7 (Gained 0, Lost 7)

US Gains• Countries: Argentina, Canada (5), China, France,

Germany (2), Hong Kong (2), Hungary, India (5), Iran (2), Ireland, Israel (2), South Africa, Taiwan (3), UK (3), USSR, and Venezuela

• Biotech/Pharmaceuticals (2), Commodities/Resources (1), Communications, Financial Services/Investments (4), IT (10), Manufacturing (2), Media/Entertainment (3), Real Estate (6), Retail, Venture Capital (2), and Other

• Sixteen entrepreneurs obtained higher education in the US and stayed

• No conflict or political instability

US Losses

• Countries: Canada (3), China (2), Hong Kong (2), India, Russia, Switzerland (2). Except for Switzerland, the movers were either returning to their home country or had ethnic ties to the move.

• Industries: : Biotech/Pharm, Commodities/Resources (4), Communications, Financial Services/Investments (2), IT, Logistics (2), and Retail

• No entrepreneurs left and obtained education elsewhere

• No conflict or political instability

UK Gains• Countries: Australia, Egypt, Hungary,

Iraq, Russia, Singapore, South Africa (2), and Switzerland

• Industries: Communications (2), Commodities/Resources (2), Financial Services/Investments (4), Media/Entertainment (2), Real Estate/Construction, and Other

• Two entrepreneurs received higher education in the UK and stayed

• No conflict or political instability

UK Losses

• Countries: Bahrain, Hong Kong, and US (3)

• Industries: Commodities/Resources, Financial Services/Investments, Media/Entertainment, Retail, Venture Capital

• One person received a degree abroad

• No conflict or political instability

Russia Gains• Countries: Germany, Iceland, Israel,

Kazakhstan, New Zealand, Turkey, and US• Industries: Commodities/Resources (4),

Financial Services/Investments (3), Real Estate/Construction (3), Communications, and a Brewery

• No additional education attained• No moves into conflict/political instability,

but 2/7 moves were in the aftermath of the USSR collapse.

Russia Losses• Countries: Hungary, Iceland, and the

UK• Industries: Communications,

Commodities/Resources (2), Financial Services/Investments (2), similar to the industries in which they gained.

• No additional education attained• No moves from conflict or in the

aftermath of the USSR collapse

China Gains• Countries: Australia, Hong Kong (4),

Singapore, and US (2), all are ethnic Chinese.

• Industries: IT, Manufacturing, Real Estate/Construction (2), Retail, and Solar Power.

• No additional education attained• No moves into conflict/political

instability.

China Losses• Countries: Hong Kong (2),

Singapore, and US• Industries: IT, Manufacturing,

Media/Entertainment, Real Estate, similar to the industries in which they gained

• One person received a degree abroad (BA/BS-MA)

• One out of four moves from a conflict/political instability situation

Hong Kong Gains• Countries: Brazil, China (2),

Malaysia, UK, and US (2), all are ethnic Chinese.

• Industries: Commodities/Resources (3), Logistics (2) Manufacturing (2), Media/Entertainment, and Real Estate/Construction

• No additional education attained• No moves into conflict/political

instability

Hong Kong Losses• Countries: China (4), Taiwan, and US

(2), all ethnic Chinese• Industries: IT, Manufacturing (5),

Real Estate/Construction• No additional education attained• No moves into conflict/political

instability

Canada Gains• Countries: Israel, Jamaica, and US

(3)• Industries: Biotech/Pharmaceuticals,

Commodities/Resources, Financial Services/Investments (2), and Real Estate/Construction

• Two entrepreneurs received education in Canada and stayed

• No moves into conflict/political instability

Canada Losses• Countries: Singapore and US (5)• Industries: Biotech/Pharmaceuticals,

Commodities/Resources, Financial Services/Investments, IT (2) Media/Entertainment, and Real Estate/Construction

• Two entrepreneurs received education outside of Canada (the US) and stayed

• No moves into conflict/political instability

India Gains• Countries: Oman and US • Industries: Commodities/Resources

and Real Estate/Construction• No additional education attained• No moves into conflict/political

instability.

India Losses• Countries: Oman and US (5). • Industries: Commodities/Resources

Communications, IT (3), Real Estate/Construction, and Venture Capital

• Four entrepreneurs obtained education in the US and stayed

• Three entrepreneurs moved from a conflict/political instability situation

Israel Gains• Countries: None• Industries: None• No additional education attained• No moves into conflict/political

instability• However, several people migrated

to Israel, THEN migrated elsewhere and became entrepreneurs

Israel Losses• Countries: to Australia (2), Canada,

France, Russia, and US (2)• Industries: Commodities/Resources,

Financial Services/Investments, Media/Entertainment, and Real Estate/Construction (5)

• One person received a degree abroad

• Three out of seven moves were from a conflict/political instability situation

Next Steps

• Gather additional years of data• Gather data on millionaires• Assess countries that excel in

keeping talent (study people who do not migrate)

• Incorporate variables from GEM data

• Also account for other factors, such as preferential treatment (Russia)

References• Acemoglu, D. (1995). ‘Reward Structures and the Allocation of Talent,’ European

Economic Review. 39, 17-33• Acemoglu, D., and T. Verdier (1998). ‘Property Rights, Corruption, and the

Allocation of Talent: A General Equilibrium Approach.’ The Economics Journal.’ 108, 1381-403.

• Baumol, W. (1990). ‘Entrepreneurship: Productive, Unproductive, and Destructive.’ The Journal of Political Economy. 98 (5), 893-921.

• Coyne, C., and P. Leeson (2004). ‘The Plight of Underdeveloped Countries.’ Cato Journal. 24 (3), 235-49.

• Desai S. (2008). ‘A Theory of Destructive Entrepreneurship.’ Essays on Entrepreneurship and Postconflict Reconstruction. Fairfax, VA: George Mason University. 15-42.

• Forbes. The World's Billionaires. (2008) Available on 4-1-2015 from: “http://www.forbes.com/2008/03/05/richest-people-billionaires-billionaires08-cx_lk_0305billie_land.html.”

• Murphy, K., A. Shleifer, and R. Vishny (1991). ‘The Allocation of Talent: Implications for Growth.’ The Quarterly Journal of Economics. 106 (2), 503-30.

• Sobel, R. (2008). ‘Testing Baumol: Institutional Quality and the Productivity of Entrepreneurship.’ Journal of Business Venturing. 23 (6), 641-55.

Hypothesis Testing

Hypothesis Testing

Hypothesis Testing