Human Capital Flight: Impact of Migrationon Income and Growth

December 1, 1994

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Human Capital Flight: Impact of Migrationon Income and Growth, (USA: International Monetary Fund, 1994) accessed November 24, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper analyses the impact of government tax and subsidy policy on immigration of human capital and the effect of such immigration on growth and incomes. In the context of a two-country endogenous growth model with heterogeneous agents and human capital accumulation, we argue that human capital flight or “brain drain” arising out of wage differentials, say because of differences in income tax rates or technology, can bring about a reduction in the steady state growth rate of the country of emigration. Additionally, permanent difference in the growth rates as well as incomes between the two countries can occur making convergence unlikely. While in a closed economy, tax-financed increases in subsidy to education can have a positive effect on growth, such a policy can have a negative effect on growth when human capital flight is taking place. Since subsidizing higher education is more likely to induce substantial brain drain, it is likely to be inferior to subsidy to lower levels of education if growth is to be increased.

Subject: Capital outflows, Education, Human capital, Labor, Migration

Keywords: Brain drain, Capital flight, Fixed cost, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/155
Stock No:

WPIEA1551994
ISBN:

9781451921335
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 42, No. 3, September 1995.

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