THE FISCAL CONSEQUENCES OF BRAIN DRAIN: HOW REMITTANCES AND POLITICAL STABILITY SHAPE PUBLIC EDUCATION INVESTMENT IN DEVELOPING COUNTRIES

Abstract

Remittance inflows, often used as a proxy for brain drain, play a significant role in shaping the economic and social outcomes of developing countries. Although these economic inflows are widely affirmed for supporting household incomes, their comprehensive effect on government responsibilities, particularly in the education sector, remains unexamined. This research investigates how remittance inflows affect government education spending and examines whether political stability moderates this relationship. Using panel data from 2003-2023 for Pakistan, Nigeria, and South Africa, the results show a negative relationship between the remittance inflows increase and governments tend to reduce their spending on education. The effect intensifies under weaker governance, where remittances are viewed as substitutes for public investment. Conversely, South Africa's political stability emphasizes the role of strong institutions. Results highlight the crucial role of governance in addressing the broader impacts of remittance inflows. Governments should acknowledge that remittances ease household burdens but still require public investment in education. Strengthening institutional frameworks and ensuring transparent fiscal management are vital for ensuring alignment with private financial inflows with national development objectives. By ensuring a balanced and responsible approach, developing countries can utilize remittance inflows to complement, rather than replace, their commitments to education and human capital development.

Keywords: Brain Drain, Remittance Inflows, Developing Countries, Governance, Government Expenditure Spending, Human Capital Development