Brain drain or brain gain? International labor mobility and human capital formation

Abstract

This paper studies the impact of international labor migration on human capital investment in both hosting and sending countries using an integrated theoretical framework. We develop a two-country dynamic stochastic general equilibrium human capital investment model with international labor mobility, in which both decisions to migrate and to invest in skill acquisition are endogenous. We show that the human capital formation process in the countries of origin is very sensitive to migration policies implemented by hosting countries. Our findings show that human capital accumulation in the sending country is encouraged by the possibility of emigration to higher labor productivity countries, supporting the recent view of the ‘brain gain’ hypothesis. Productivity shocks hitting the hosting country reduce the human capital investment by natives but increase the human capital investment in the sending country when migration is allowed. Finally, we find that migration increases world human capital, increasing the stock of human capital in both hosting and sending countries.

KEYWORDS:

• Migration
• brain drain
• brain gain
• human capital formation
• migration policy

JEL Classifications:

• F22
• J24
• J61

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Another line of research that has received great attention is related to the use of fiscal instruments (taxes), in relation to the phenomenon of brain drain. This literature was initiated by Bhagwati (1972), proposing the introduction of a tax on skilled workers who decide to migrate to high-income countries.

2 There has also been a significant increase in international movements, temporarily and for short periods of time, joint to the phenomenon of circular migration. Temporary migration refers mainly to the international movements of students, researchers, and university professors, but also to technicians of firms that have spread internationally, as a result of the globalization process. In this regard, emigration is transitory in many cases, with different effects with respect to permanent flows. These movements have also experienced a significant increase in recent years and represent a type of international knowledge mobility from which large positive implications can be derived for both the countries of origin and the hosting countries. In this case, the factors that motivate these movements are quite different from those of permanent emigration. Permanent migration flows are determined by the salary and labor conditions. By contrast, in the case of researchers and students, the motivation is driven by access to higher quality training, better research centers, better infrastructures supporting knowledge, as well as greater professional and academic recognition in their sending countries. See, for instance, Dustmann, Faldon, and Weiss (2011), Gibson and McKenzie (2011), Dinkelman and Mariotti (2016).

3 This is consistent with the findings of Klenow and Rodriguez-Clare (1997), Hall and Jones (1999), Caselli (2005), etc. Klenow and Rodriguez-Clare (1997) studied how international productivity differences depend on human capital. They showed evidence on the debate on productivity versus physical and human capital when explaining international differences in levels and growth rates of output. They addressed that capital accumulation or technology catch-up explains the growth in output per worker, but not growth in output; and that international differences in output per worker are related to productivity differences. Hall and Jones (1999) show that differences in physical capital and educational attainment can only partially explain the variation in output per worker. They also found that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, the so-called social infrastructure. In summary, the literature highlights factors of production and efficiency as key factors explaining international income differences.

4 Alternative specifications for the human capital investment function have been used but the main results remain the same.

5 There is a number of papers that consider migration policy by the sending country, as Bhagwati and Hamada (1974), among others.

6 Remittances are another important element to be considered to estimate the implications of migration on the countries of origin. However, the model developed here does not include remittances. This is done just to isolate the direct effects of migration on human capital accumulation through education investment decisions.

Additional information

Funding

This work was supported by the Agencia de Innovación y Desarrollo de Andalucía; Spanish Ministry of Science and Innovation.