This study analyses the international flow of third level developing country students to advanced countries from the perspective of sending authorities in developing countries. The magnitude of this flow can hardly be overemphasized; on the basis of a conservative estimate made in the article, the annual loss of foreign exchange entailed by this flow amounted to 17 percent of the interest repayment on total external debts of the lesser developed countries (LDCs) in 1979, a sum which the developing countries themselves can hardly ignore.
On an aggregate basis, our principal hypothesis is that the outflow of students is determined primarily by excess demand for third level education in developing countries. The empirical results support this hypothesis, while pointing to the importance of other factors. Excess demand for third level education in the developing countries is one of the most important determinants of the flow of developing country students to the advanced countries.
On the whole, expansion of developing country tertiary education, at the national or regional levels, could effectively divert some of the flow to local institutions. Aside from this, expansion can also be argued on the basis of the high returns to third level education in developing countries compared to the returns to physical capital, as well as the considerable economies of scale associated with this level of instruction. Further, given the willingness/ability of the students to pay, as witnessed by the fact that the vast majority of developing country students finance privately their education abroad, the expansion of third level education in LDCs could be funded substantially via user charges and student loan schemes.