Friday, June 11, 2010

Best Talent Escapes Gravity

In economic development circles, there is significant interest in educational attainment. The percentage of workers with a college degree is a good proxy for measuring the available talent. I think we could do better.

Not all regional brain boosters are the same. I'm confident this is the case because of all the research about how migrants tend to be more entrepreneurial than the rest of the population. A region is better off attracting talent than producing it locally. Furthermore, not all inmigration is of the same quality. The greater the relocation risk, the more likely that person is a job creator.

A good proxy for a difficult migration is distance. Other indicators are gender (women would be of greater value) and social networks (how many people overcome the proximity problem). Escaping the gravity of familiar terrain demonstrates the same kind or risk taking required to start a business:

CEPII has compiled data (dist_cepii.xls found here) on distances between countries among other geographic measures. To incorporate this data into our measure of competitiveness, we multiplied the population-adjusted migration balance between each pair of countries by the square-root of the distance between the two countries. Basically, we wanted migration between two countries that are close together to count less than migration between two countries that are far apart. Further, using the square-root of the distance reflects our belief that distance traveled would likely be related to competition in a diminishing manner. Put another way, it might be difficult to move 100 miles, but once you’ve moved that first 100 miles, it becomes less difficult to move another 100 miles and so on. Therefore, while the distance travelled likely matters, we think it matters in a non-linear, diminishing way.

The gravity model is a basic tool for geographers. One can explain a lot of migration in terms of proximity. A small number of inmigrants from far away can make up for an overall lack in numbers. The easy way is to go after immigrants. Odds are strong that your region will attract an entrepreneur. Domestically, where there are almost no legal barriers, distance is key. Pulling in a female living 2000 miles away with no ties to your town is quite a coup, regardless of her educational attainment.

You can also apply this model to expatriates. How far and why did they move? That's an easy algorithm to help target your talent attraction efforts.

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