Diaspora and Development

TLDR

Diaspora remittances often exceed official aid, and scholars like Bhagwati have proposed a “brains tax” to redirect diaspora income to development, highlighting the diaspora’s growing role as a source of funds, skills, and know‑how. This study investigates whether diaspora investments can serve as effective agents of change in their home countries. The authors compare the social rate of return on diaspora investments to that of foreign direct investment, arguing that the former may yield higher returns.

Abstract

Jagdish Bhagwati's proposal for a ‘brains tax’ to be levied on the incomes of the diaspora from developing countries residing in the developed countries and the proceeds to be remitted to the countries of origin of the diaspora is well known. In recent years the voluntary contributions or remittances from the diaspora to their countries of origin have often been higher than the aid monies given to these countries. It is now increasingly recognised that the diaspora may have an active role to play in the development process of their countries of origin. They are not only a source of funds; they are also a rich source of skills and know‐how. This paper analyses the potential of the diaspora as agents of change in their countries of origin and argues that the social rate of return to a unit of diaspora investments may be higher than that for a unit of foreign direct investment from non‐diaspora sources.