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No. 004/2006 Outsourcing, Migration, and Brain Drain in the Global Economy: Issues and Evidence Habibullah Khan & M. Shahidul Islam September 2006 0 Outsourcing, Migration, and Brain Drain in the Global Economy: Issues and Evidence Habibullah Khan, U21Global, Singapore 1 hkhan@u21global.edu.sg M. Shahidul Islam, Policy Consultancy Associates, Singapore 2 shahid@policyconsultancy.com ABSTRACT The process of globalization seems to have created two opposing forces, outsourcing and international migration, which are likely to have a balancing impact on the global economy. While the developing countries are losing skilled labor through ‘brain drain’ to their developed counterparts, they are gaining remittance earnings from developed countries. At the same time, offshore outsourcing from the developed countries has created new employment and other opportunities in developing countries. Although the final impact of outsourcing is somewhat controversial, it is very likely that companies will intensify offshoring in future due to substantial cost advantages. The outflow of skilled manpower from developing countries is also likely to increase due to growing demand for ‘replacement migration’ from developed countries. Increasing job gains from outsourcing and the associated benefits on the economies of developing countries are likely to cancel out the perceived negative impact of brain drain, argued in this paper. 1. INTRODUCTION Although globalization is a historical process, it gained new momentum in the past three decades. The end of the Cold War, the development needs of the transitional economies, financial and trade reforms in the developing countries, revolution in information and communication technology, and rapid productivity growth in the global economy played a key role in accelerating the pace of internationalization. Productivity growth has

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