Loss of Human Capital and Development: Evidence from Russian Germans Repatriation

Abstract: How important is human capital for development? Typically, researchers try to answer this question by studying human capital accumulation. We propose another approach, focusing on loss of human capital due to emigration. We exploit exogenous variation in feasibility of emigration for inhabitants of the South-West Siberia arising from the repatriation program for people of German origin – the ethnic group widely believed to be hard working, thrifty and sober when compared to their Russian and other neighbors. Using municipality-level panel model approach, we show that districts with greater German presence in the census years (1989 and 2002) had lesser population growth during the ensuing period (1989-2002 and 2002-2010, respectively). We also demonstrate that share of Germans across raions is positively associated with potato and cereals output per ha. This implies that German emigration led to decrease in farming productivity. The effect cannot be explained by overall population dynamics, thus rendering agglomeration economies an implausible channel of influence. We propose human capital as the main mechanism that could explain our findings. Although norms and values of German community in Russia, i.e. components of social capital, could also matter. We further investigate both channels by using additional data on education and social capital.