North-South Trade-related Technology Diffusion, Brain Drain and Productivity Growth: Are Small States Different?

The economies of small developing states tend to be more fragile than those of large ones. This paper examines this issue in a dynamic context by focusing on the impact of the brain drain on North-South trade-related technology diffusion and total factor productivity growth in small and large states in the South. There are three main findings. First, productivity growth increases with North-South trade-related technology diffusion and education and the interaction between the two, and decreases with the brain drain. Second, the impact of North-South trade-related technology diffusion, education, and their interaction on productivity growth in small states is more than three times that for large countries, with the negative impact of the brain drain thus more than three times greater in small than in large states. And third, the greater loss in productivity growth in small states has two brain drain-related causes: a substantially greater sensitivity of productivity growth to the brain drain, and brain drain levels that are more than five times greater in small than in large states.